How does temperature affect rural income: Channels and implication of adaptation

Abstract This paper examines the impact of daily temperature variations on rural income per capita and evaluates the effectiveness of adaptation based on China's county‐level socioeconomic statistics and household survey data. We find that high temperatures have significant negative effects on rural income per capita. Relative to the physically comfortable reference temperature between 10 and 15°C, an additional day with a daily average temperature above 30°C reduces the rural income per capita by 0.12% in the year. Evidence from micro‐data indicates that agricultural income of rural households is sensitive to high temperatures relative to other components of household income, such as wage income and transfer income, which leads to a reallocation of rural laborers across sectors. In addition, we indeed find some evidence of adaptation, but we conclude that the current adaptation pattern of rural households probably magnifies the threat of future climate change to China's agricultural sector.