The impact of rainfall on productivity: Implications for Chinese manufacturing

Rainfall affects productivity in many ways. Compared to temperature anomalies, the impacts of precipitation anomalies have been understudied, with existing evidence at the macro level. By combining ground station-level climate data and micro-data from half a million manufacturing firms in China, we uncover that rainfall negatively impacts firms' productivity, with the most significant negative impacts concentrated in extremely heavy rainfall anomalies. Labor-intensive, low-tech, or less productive firms and those located in rainy regions are vulnerable to rainfall extremes. Our estimates are large enough to explain previously observed output losses in crosscountry panels. We uncover three primary channels through which manufacturing firms experience productivity loss: reduction in labor, agriculture intermediate inputs and transportation disruptions. We also identify several margins of adaptation. Utilizing the Shared Socioeconomic Pathways Scenarios (SSPs), we estimate the future impact of rainfall on productivity in a costbenefit analysis. Our projections indicate a substantial output loss of 2.4-14.9 billion CNY by 2100, due to the increase in extreme rainfall events under each scenario with different implementation of environmental policies.