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  5. Firm Adaptation in Production Networks: Evidence from Extreme Weather Events in Pakistan

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

Firm Adaptation in Production Networks: Evidence from Extreme Weather Events in Pakistan

  • Clare Balboni
  • Johannes Boehm
  • Mazhar Waseem
American Economic Review (Forthcoming)

Abstract

This paper considers how far private adaptation may reduce future vulnerability to climate risks. Using data on monthly firm-to-firm transactions from Pakistan, we find that flood-affected firms are more likely to relocate to safer ground, and shift purchases towards suppliers in less flood-prone regions and reached via less flood-prone roads. The results indicate that firms are imperfectly in- formed about flood risk, and update their beliefs following floods. We quantify aggregate impacts using a spatial model of endogenous production network formation. The findings suggest that firms' learning will shape the economic impact of increasingly frequent climate-related disasters.

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