Desertification in Spain: Is there any impact on credit to firms?

Carmen Broto and Olivier Hubert
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Carmen Broto: BANCO DE ESPAÑA
Olivier Hubert: BANCO DE ESPAÑA

No 2513, Working Papers from Banco de España

Abstract: We study whether the process of desertification in Spain has an impact on the volume of credit granted to Spanish non-financial corporations (NFCs). To this end, we use a panel data model at the municipal level from 1984 to 2019 for bank loans obtained from the Banco de España’s central credit register, where the main explanatory variable is the aridity index. Given that aridity is a long-term climatic phenomenon, we also estimate the model with local projections (Jordà, 2005) to disentangle the impact of aridity on credit to NFCs over longer horizons. Consistent with the literature, we find that higher aridity leads to lower credit to firms, at both short and long-term horizons. We also show that the effect of aridity on credit is sector-specific and depends on the climate zone. Credit to the agricultural sector is most negatively affected by this climatic hazard, while this phenomenon leads to more credit to the tourism sector in the most humid regions.

Keywords: climate change; credit; aridity index; non-financial corporations; panel data model; local projections (search for similar items in EconPapers)
JEL-codes: C33 E51 Q51 Q54 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2025-02
New Economics Papers: this item is included in nep-env and nep-res
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:2513

DOI: 10.53479/39119

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