The Economic Impacts of Temperature on Industrial Productivity: Evidence from Indian Manufacturing

We provide empirical evidence indicating that changes in surface temperatures may directly impact manufacturing output through their impact on worker productivity. We utilize a multiyear panel of manufacturing plants in India, as well as daily worker productivity measures from selected case-study units to show that (i) manufacturing output decreases at high temperatures by 1-3 percent per degree celsius; (ii) this reduction appears to be driven by
declining worker productivity. Our results suggest that climate-economy models may underestimate the costs of climate change by neglecting to account for reduced worker productivity. The causal channel we identify could explain a portion of the strong negative correlation observed between temperature and GDP.