We Are All in the Same Boat: Cross-Border Spillovers of Climate Shocks through International Trade and Supply Chain

Alan Feng, Haishi Li and Yulin Wang

No 10402, CESifo Working Paper Series from CESifo

Abstract: Are land locked countries subject to sea-level rise risk? We highlight a new mechanism by which physical climate shocks affects countries’ macro-financial performance: the cross-border spillover effects that propagate through international trade. Basing our findings on historical data between 1970 and 2019, we find that climate disasters that strike the transport infrastructure – ports – decrease the affected country’s imports and exports and reduce economic output in major trade partner (both upstream and downstream) countries. Climate disasters reduce stock market returns in the aggregate market and tradable sectors of the major trade partner countries. Exposures to foreign long-term climate change risks reduce the asset price valuations of the tradable sectors at home. As a result, climate adaptation efforts in one country can have a positive impact on macro-financial performance and stability in other countries through international trade.

Keywords: climate risks; international trade; infrastructure; macro-financial stability (search for similar items in EconPapers)
JEL-codes: F42 G14 Q54 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-env and nep-int
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Citations: View citations in EconPapers (4)

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