Does climate risk impact household consumption? Evidence from China

Abstract

Climate change is gradually reshaping consumption patterns, with extreme weather events exerting substantial negative effects. This paper examines the causal connection between household consumption and physical climate risk for a sample of households from the China Household Finance Survey (CHFS) between 2011 and 2019. The findings reveal that physical climate risks significantly decrease household consumption, which is driven by reductions in household income. We also find that commercial insurance can mitigate the negative impact of physical climate risk on household consumption, and the effects are stronger for households with low education levels, and those in adverse climatic regions and rural areas. These findings offer new insights into consumer behavior amid physical climate risks and provide implications for targeted policies supporting vulnerable groups.