热度、非正规性和分配不当：短期和长期的企业适应

Heat, Informality, and Misallocation Firm Adaptation in the Short and Long RunPublic Disclosure Authorized Jonah RexerSiddharth Sharma South Asia RegionOffice of the Chief EconomistJanuary 2026 Policy Research Working Paper11284 Abstract How do climate shocks shape resource allocation acrossfirms? Rising temperatures might worsen allocative effi-ciency if large, productive firms face constraints in adapting.This paper assesses this question in India, an economy char-acterized by informality, misallocation, and extreme heat.The paper uses census data on 42 million non-farm estab-lishments from 1990 to 2013 linked to granular climatehistories to estimate the impact of heat on the firm sizedistribution. A 1 degree Celsius temperature shock reducesfirm size by 11.6 percent, with losses concentrated amonglarge, formal firms. Displaced workers reallocate to smaller, informal firms, generating allocative efficiency losses of upto 4.3 percent. In long difference estimates spanning severaldecades, the relationship reverses: large firms adapt andabsorb labor, while small firms contract. This adaptationoffsets nearly 60 percent of the short-run labor demandshock. These results highlight a general mechanism ofclimate adjustment: in the short run, shocks exacerbatemisallocation by pushing labor into low-productivity firms,but in the long run, adaptation by larger firms restoresefficiency. The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about developmentissues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry thenames of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely thoseof the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank andits affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent. Heat, Informality, and Misallocation:Firm Adaptation in the Short and Long Run* Siddharth Sharma‡World Bank Jonah M. Rexer† JEL: Q54, J23, J46, L11, D61 Keywords: climate change adaptation, allocative efficiency, labor markets, informality 1Introduction There is growing evidence that climate change harms firm productivity (Heal and Park,2016). Much of this evidence comes from the agriculture sector, where rising temperatures,changing weather patterns, and rainfall variability have reduced agricultural productivityaround the world (Burke and Emerick, 2016; Nath, 2020).Studies increasingly show thatclimate change also harms firms in the non-farm sector, where rising temperatures reducelabor productivity (Adhvaryu et al., 2020; Somanathan et al., 2021) and increase absenteeism(Somanathan et al., 2021). In addition to the firm-level productivity effect, climate change also has a reallocativeeffect. Rising temperatures tend to shift resources away from agriculture, the most climate-sensitive sector and toward higher productivity non-farm sectors, triggering structural change(Colmer, 2021; Nath, 2020). They also spur migration to less-exposed, more productive urbanlocations (Baez et al., 2017).In low-and middle-income countries, where numerous small,informal firms typically coexist with less numerous but more productive formal firms, widedispersion in productivity suggests that climate-induced labor reallocation between smalland large firms—even within narrowly defined sectors—could have important implicationsfor aggregate productivity (Hsieh and Klenow, 2009; Hsieh and Olken, 2014; Restuccia andRogerson, 2017; Hopenhayn, 2014). Reallocative effects could help offset the first-order pro-ductivity loss from climate change if larger firms adapt more effectively (Goicochea and Lang,2023; Xie, 2024a). At the same time, reallocation could also magnify productivity losses, atleast in the short-run, if the returns to adaptation by larger firms take time to materialize.Workers laid off from formal firms following a heat shock might transition into the informalsector or self-employment, lowering aggregate productivity. We examine this underexplored question in the context of India, which is among theworld’s most climate change-exposed countries. Under an SSP2-4.5 warming scenario, thenumber of days with heat index exceeding 35 degrees Celsius in India is projected to reacha median of 80 by 2040-59 and 95 by 2060-79 (WorldBank, 2024). Like many other emergingeconomies, India also has a skewed firm-size distribution. Together with a small number oflarge firms that operate close to the global technology frontier are a multitude of informalfirms with fewer than 10 employees. The latter account for 99 percent of all firms and more than 75 percent of total employment in India’s non-farm sector (Bussolo and Sharma, 2022);in comparison, the modal firm size in the U.S. ma