Manufacturing Output and Extreme Temperature: Evidence from Canada

Abstract

This paper analyzes the effects of extreme temperature on manufacturing output using a dataset covering the universe of manufacturing establishments in Canada from 2004 to 2012. Extreme temperature can affect manufacturing activity by affecting separately or jointly labour productivity and labour inputs. Using a panel fixed effects method, our results suggest a non-linear relationship between outdoor extreme temperature and manufacturing output. Each day where outdoor mean temperatures are below -18°C or above 24°C reduces annual manufacturing output by 0.18% and 0.11%, respectively, relative to a day with a mean temperature between 12 to 18°C. In a typical year, extreme temperatures, as measured by the number of days below -18°C or above 24°C, reduce annual manufacturing output by 2.2%, with extremely hot temperatures contributing the most to this impact. Given the predicted change in climate for the mid and end of the century, we predict annual manufacturing output losses to range between 2.8 to 3.7% in mid-century and 3.7 to 7.2% in the end of the century.