How Do Temperature Shocks Affect Tax Revenue from International Trade? New Evidence from Provincial Panel Analysis in Vietnam

This study offers new insights into the impact temperature shocks on international trade activity in Vietnam using tax revenue as a proxy. Temperature shocks reveal deviations climate variables from the historical norms relation to human activities, enabling us to examine the way people adapt to climate change. It is likely a superior proxy compared conventional approaches that either create temperature bins or standardise measurements. The research findings indicate that while the temporary effect of temperature shocks significantly reduces tax revenue from international trade, the permanent effect is nearly six times as great as the temporary effect. The results also reveal that the shock is more pronounced in areas with prominent foreign direct investment companies, and less in regions with more favourable temperature conditions, indicating heterogeneous effects. The increased energy costs associated with higher temperatures in manufacturing processes potentially leading to longterm vulnerability may explain the findings. Accordingly, we propose several policy implications for fostering sustainable growth Vietnam amidst rising temperatures.