Expecting Floods: Firm Entry, Employment, and Aggregate Implications

Ruixue Jia, Xiao Ma and Victoria Wenxin Xie

MPRA Paper from University Library of Munich, Germany

Abstract: Flood events and flood risk have been increasing in the past few decades and have important consequences on the economy. Using county-level and ZIP-code-level data during 1998–2018 from the U.S., we document that (1) increased flood risk has large negative impacts on firm entry, employment and output in the long run; (2) flood events reduce output in the short run while their impact on firm entry and employment is limited. Motivated by these findings, we construct a spatial equilibrium model to characterize how flood risk shapes firms’ location choices and workers’ employment, which we use to estimate the aggregate impact of increased flood risk on the economy. We find that flood risk reduced U.S. aggregate output by 0.52 percent in 2018, 80% of which stemmed from expectation effects and 20% from direct damages. We also apply our model to studying the distributional consequences and forecasting the impact of future changes in flood risk. Our results highlight the importance of considering the adjustment of firms and workers in response to risk in evaluating the consequences of natural disasters.

Keywords: flood risk; flood events; productivity damage (search for similar items in EconPapers)
JEL-codes: Q5 R1 (search for similar items in EconPapers)
Date: 2022-03-10
New Economics Papers: this item is included in nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Related works:
Working Paper: Expecting Floods: Firm Entry, Employment, and Aggregate Implications (2022)
Working Paper: Expecting Floods: Firm Entry, Employment, and Aggregate Implications (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:112367

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