Conference Agenda

Climate change increasingly threatens global production networks. In this paper, we develop a novel framework to capture how anomalies in water availability, occurring anywhere around the globe, can propagate along supply chains and reduce output in distant regions. Using multi-regional input-output data, high-resolution climate information, and subnational gross value added (GVA) across Europe, we show that accounting for supply chain spillovers more than doubles local damage estimates compared to purely local climate measures. Our dynamic panel estimates reveal that water scarcity shocks transmitted via supply chains significantly lower GVA contemporaneously and exert persistent effects over a decade. We find that Europe as a whole lost €12.6 trillion in GVA from 2000 to 2019 due to water scarcity shocks when accounting for supply chain spillovers. Moreover, the average NUTS-3 region would have produced nearly 5% more in GVA in 2019 had these shocks not occurred. Our results underscore the importance of integrating supply chain interlinkages into climate impact assessments and highlight the need for adaptation measures to increase the climate-resilience of global supply chains under global warming.

This study investigates the direct and spillover effects of hurricane strikes on tourist

arrivals in the Caribbean. We utilize a physically based index of hurricane destruction and develop a measure of indirect hurricane exposure on nearby islands to identify spillovers. After accounting for variation in location, time, and location-specific seasonality, we find that hurricanes significantly decrease the number of tourist arrivals in the destinations hit, but increase the number of arrivals on nearby islands. This tourism spillover effect is more pronounced for cruise ship arrivals than air arrivals and generally disappears after one year. Not accounting for spillovers, the average hurricane strike reduces monthly arrivals by 4.2% for air and by 37.7% for cruise ship arrivals. This is likely due to cruise ships changing their routes to non-affected destinations in reaction to a hurricane, resulting in a significantly larger spillover: the average hurricane strike nearby increases cruise ship arrivals by 16% compared to 0.7% for air arrivals. Our results suggest that policymakers could coordinate with the tourism industry to encourage the diversion of tourism by air to reduce the negative economic consequences of hurricanes in the region.

This paper investigates the impacts of power rationing on firm performance during heat-induced power shortages and the economic rationales for the government’s power rationing strategy in a system characterized by a lack of market mechanisms and price signals. We combine panel data from Chinese firms with fine-scale meteorological data to find robust evidence that high temperatures significantly reduce firms’ electricity usage and performance. Leveraging inter-provincial hydropower dispatching and precipitation anomalies, we provide causal evidence that the decline in firms’ electricity usage is primarily driven by power rationing during high-temperature days. We further developed a framework to theoretically and quantitatively analyze the social planner’s optimal allocation of electricity between sectors and the welfare implications of prioritizing the household sector’s power demand. Our results provide insights that climate change-intensified inter-sectoral competition for electricity and market inefficiencies can explain power rationing in China.

It is well established that climate change affects economic production, but its effects on trade costs have not been studied. I use international trade and weather data covering almost 200 years to show that climate change increases trade costs. Estimating a simple augmented gravity framework, I find that rising temperatures at the origin or destination country increase bilateral trade cost, possibly driven by the vulnerability of sea ports to climate related adverse weather events. Adaptation to this impact appears to be slow, which is concerning given the increasing pace of climate change. Combining these results with a standard international trade model, I find that 2010s welfare would increase by 2.6 percent if we could undo the impact of climate change on trade cost over the preceding 100 years. Welfare gains depend not only on countries' own climate trends, but also on their trends relative to neighboring countries --- when countries experience less drastic climate change than their neighbors, they see relative trade cost gains and therefore less severe welfare losses. Looking at the distribution of gains, poor and rich countries are equally harmed by climate induced trade cost increases. Smaller economies, which are more reliant on international trade, are especially affected. A counterfactual exercise shows that ignoring this trade cost channel and focusing only on productivity changes leads to a ten percent underestimate of the welfare effect of climate change. The welfare effects I find are consistent in magnitude with recent, larger estimates of the welfare impact of climate change. Because it is based on a gravity estimation, my methodology can easily be embedded in studies of the impact of climate change.