Does Climate Affect Investments? Evidence from Firms in the United States

Petre Caraiani, Carolyn Chisadza () and Rangan Gupta
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Carolyn Chisadza: Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa
Authors registered in the RePEc Author Service: Oguzhan Cepni

No 202448, Working Papers from University of Pretoria, Department of Economics

Abstract: This study updates the existing literature on the adverse effects of climate change on firms' performance by providing an alternative perspective that climate change can have potential growth benefits. We examine the effects of climate shocks on firms' investments. Using a spatial autoregressive model with United States (U.S.) firm-level data from 1985 to 2019, we find that increased frequency of climate shocks is positively associated with investments for firms, with larger spillover effects on neighbouring firms. These findings remain consistent for various robustness checks which include sub-sample analysis, different outcome variables and controlling for financial characteristics of the firms. The results highlight that contrary to current evidence, climate change can create incentives for firms to increase investments in adjusting their production processes to cleaner technologies.

Keywords: Climate shocks; Corporate investments; Spatial econometrics; Production network structure (search for similar items in EconPapers)
JEL-codes: C31 D24 D92 Q54 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2024-11
New Economics Papers: this item is included in nep-agr, nep-env, nep-res and nep-sbm
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