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February 5, 2026China Finance Review International1 citations

Exploring the impact of climate risk on economic activities by capturing critical transitions in the climate system

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KXKai XingYYYufeng YangDPDiyun Peng

Key Points

  • The study aims to investigate how climate risk influences key economic sectors and captures dynamic transitions in the climate system.
  • Applied critical transition theory to economic activities
  • Utilized VAR model to analyze relationships
  • Conducted Granger causality tests for understanding dependencies
  • Review of existing literature on climate risk and economics
  • Increased agricultural production costs due to climate risk
  • Reduced industrial output growth rate in the short term
  • Increased output in the service sector as a response
  • Long-term effects of these changes are reversible

Abstract

Purpose This study investigates how climate risk affects economic activities represented by key economic sectors, including agriculture, industry and services, via applying the theory of critical transitions originally developed in the natural sciences. The primary objective is to capture dynamic shifts in climate system and examine their economic consequences. Design/methodology/approach Critical transition \ VAR model \ Granger causality test \ Literature research method. Findings Empirical evidence indicates that climate risk raises agricultural production costs and reduces industrial output growth rate in the short term, while increasing service sector output. However, these effects are reversible in the long term. These findings provide implications for managing the economic impacts of climate risk, mitigating its negative shocks, and supporting effective policymaking. Originality/value This study offers three main contributions. First, it empirically applies critical transition theory to the study of climate risk in complex systems. While existing literature theoretically explains the feasibility of critical transition theory in measuring climate risks, there remains a lack of empirical application. Second, the study broadens the research scope on the economic consequences of climate risk. It addresses the empirical gap in understanding climate-induced structural economic transformations, while also enriching the theoretical discourse on this topic. Finally, the study proposes targeted policy recommendations for enhancing climate resilience.

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Cite This Study

Xing et al. (2026) studied this question.

synapsesocial.com/papers/6984358ff1d9ada3c1fb48a7https://doi.org/10.1108/cfri-06-2025-0404
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