Extreme heat and firms' robot adoption: Evidence from China

Abstract

This is the first study to explore the relationship between extreme heat and firms' robot adoption. The findings demonstrate that, relative to a day in the reference temperature bin, an extra day with an average temperature above 30°C reduces the probability of a firm adopting robots and the cumulative number of robots a firm has adopted. The channels of tightened financial constraints and the increased comparative advantages of industrial robots over labor are important in explaining the documented impacts. The negative effects of extreme heat are only pronounced for non-state-owned enterprises, firms with negative working capital, and firms in industries with fewer automation opportunities. Moreover, local adaptation in high-temperature regions mitigates the negative impacts of extreme heat on robot adoption. This study focuses on firms' adaptive behavior under extreme heat, which previous studies have largely overlooked, with implications for policymakers concerned with climate change adaptation and industrial automation.