Climate Variations, Culture, and Economic Behaviors by Chinese Households

Abstract Societies adapt to climate variation and develop unique cultures that lead to distinctive economic behaviors across different regions. To estimate the climate-economic link and test the hypothetical role of culture, this paper uses a nationwide survey at the household level in China, together with historical temperature data at the prefectural city level for empirical analysis. The results show the significant role of local climate variation on consumption, savings, and investment decisions by households. Harsh weather conditions are associated with lower consumption, lower income, and higher savings. It is also associated with a lower probability of purchasing risky financial assets. Using a sample of migrating families, we find strong evidence that culture is an important channel in the climate-economic relationship. Additional support for this view is found through the ‘catching up with the Joneses’ effect documented in the economics literature. Overall, this research provides an alternative perspective for understanding the long-run behavioral impact of climate change.