Climate change, institution, and the economy

The nuanced interplay between climate change and the economy presents a formidable challenge that calls for thorough exploration and understanding from scholars. In response to the intricate and multifaceted dynamics between climate change and the economy, the Institute of World Economy at Fudan University, jointly with East China Normal University and the Journal of Economic Surveys (JES), held a workshop specifically focused on “Climate Change, Institution and the Economy.” In total, we received over 60 submissions, with 16 papers presented during the workshop. Subsequently, 10 papers were invited to submit to the journal after incorporating feedback from the workshop then standard refereeing process. Finally, we distilled the insights from those papers to shape this special issue. The first four papers examine the economic impacts of extreme weather events. Dang et al. (2024) provide a survey of the literature on how climate change affects poverty and inequality. The authors analyze data sources and empirical methods, offering new insights into the distributional impacts of climate change. They find consistent evidence of negative impacts of higher temperatures and other extreme weathers on poverty across different regions, with more vulnerability in poorer countries, especially in Sub-Saharan Africa. However, the effects on inequality are less conclusive and vary depending on the context. The second paper by Guo et al. (2024) investigates how climate disasters influence the granting of green invention patents in China. Using extreme weather data of Beijing where the approval authority located between January 2000 and March 2013, the study finds that such events lead to a temporary increase in the number of green patents granted, driven by salience bias—officials overestimate the likelihood of disaster recurrence and perceive a heightened urgency for environmental protection. The effect is more pronounced for energy-saving patents and diminishes with increasing distance from Beijing. These findings highlight the behavioral biases in patent examination processes and underscore the impact of climate-related events on promoting green innovation. Paper 3 and 4 focus on the impacts of extremely high temperature. Li et al. (2024) present an analysis of the impact of heat wave disasters in Europe in 2018, on the international portfolio allocations of global funds. The authors uncover evidence that global funds tend to reduce their investments in countries affected by heat waves, and underscore the importance of institutional quality and resilience in mitigating the effects of climate change on capital flows. Kang et al. (2024) evaluate the relationship between extreme heat events and housing prices in China. Using panel data from Chinese cities, the authors find a significant negative correlation between housing prices and extreme temperatures. They explore the mechanisms behind this correlation, including the impact on labor inflows, particularly high-skilled workers, and the deterrence to firm entry, which suppresses housing demand. The next four papers mainly focus on evaluating the effects of China's green policies and institutions. Liu, Wang et al. (2024) present a quantitative spatial general equilibrium model to analyze the impact of carbon market integration on China's aggregate productivity and welfare. The study finds that allowing carbon emission rights to be traded across regions could significantly increase China's overall productivity and real GDP, while slightly reducing welfare. The sixth paper by Liu, Yu et al. (2024) evaluates the impact of China's water rights trading (WRT) pilot policy on corporate total factor productivity (TFP). The authors argue that WRT significantly enhances the TFP of firms with high water costs, mainly by promoting water-related green innovation and optimizing resource allocation, rather than by mitigating corporate risks, which is more pronounced in areas with lower levels of water endowment and market development. The seventh paper by Ding et al. (2024) investigates the adoption patterns of Leadership in Energy and Environmental Design (LEED) certification in China, focusing on the spatial agglomeration of certification choices within and across provinces. The authors find evidence of both within-province agglomeration and spatial spillover effects across nearby provinces. The paper discusses the implications of these findings for the design of certification schemes and regional policies promoting green building certifications. In a broader context, paper 8 and 9 provide new insights to the intricate relationship between trade and environmental issues. Wang et al. (2024) utilize long-term and high-resolution pollution remote sensing data to examine the dynamic impact of export expansion on the local environment. The authors find that export expansion may worsen environmental quality in the early stages, but later it will improve environmental quality. The primary reason for this dynamic change is the adjustment of environmental regulatory stringency, especially when local governments face greater environmental target pressure and the central government takes over environmental regulatory authorities. In addition, under stricter environmental regulations, regional export expansion will increase environmental expenditures and reduce more polluting inputs such as coal. Luo et al. (2024) find that pre-IPO foreign investments significantly and positively contribute to corporate environmental expenditure, while the influence of post-IPO foreign investments is negligible. These effects are particularly pronounced for privately-owned enterprises, enterprises located in coastal China, enterprises operating in heavily polluting industries, and whose managers lacks prior experience in environmental protection and international vision. The final contribution to this issue comes from Ni et al. (2024), who introduce a novel method for measuring industrial chain risk exposure on both the demand-side and supply-side at the region level. The authors find that inland regions have high domestic industrial chain risk exposures, while coastal regions have significant global chain risk exposure. Additionally, high-tech industries show greater risk exposure compared to other sectors. The main international trade regions of China have global industrial chain risk exposure similar to those of Germany and South Korea. Furthermore, there is an asymmetry in the bilateral demand-side exposure of industrial chains within each region. These findings have implication for examining the potential impact of climate change risk on firms’ industrial chain. We acknowledge the editors of the Journal of Economic Surveys for their full support to the workshop. We acknowledge financial support by Ministry of Education Project of Key Research Institute of Humanities and Social Sciences at Universities in China (No. 22JJD790014), the National Natural Science Foundation of China (No. 72341008, 72341011, 72373030).