Our Seminars & Workshops
Seminars
Workshops
Applied Economics, Econometrics & Public Policy (CAGE) Seminar - Clare Balboni (MIT)
Title: Firm Adaptation in Production Networks: Evidence from Extreme Weather Events in Pakistan (Joint with Johannes Boehm and Mazhar Waseem)
Abstract - This paper considers how far private adaptation may reduce future vulnerability to climate
change. Firms’ climate risk exposure depends not only on the location of production, but also
on network effects via the flood risk profile of suppliers and transportation links connecting
trading partners. We use data on monthly firm-to-firm transactions for the near-universe of
formal sector manufacturing firms in Pakistan and more than six billion observations from
commercial trucks traveling on the road network from 2011 to 2018 to study adaptation of
firms in production networks. We find that firms affected by major floods relocate to less flood-prone
areas, diversify their supplier base, and shift the composition of their suppliers towards
those located in less flood-prone regions and reached via less flood-prone roads. Identification
strategies that exploit both firm- and route-level flooding suggest that these responses reflect
forward-looking actions to reduce future vulnerability to flood risk rather than direct effects of
flooding, and are consistent with experience-based Bayesian updating. The results suggest that
the impacts of climate change will be mediated as firms learn from the experience of increasingly
frequent climate disasters.