Heterogeneous effects of weather shocks on firm economic performance

Romano Tarsia

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: This paper provides novel firm-level estimates of the economic damages caused by temperature shocks to European firms. I rely on a panel data analysis to show wide heterogeneities in the impact of temperature shocks, which depend on firm characteristics. This paper reveals the importance of micro-level data for quantifying climate damage estimates, as the average relationship between temperature and economic outcomes masks firms’ different susceptibilities to weather shocks. These create both winners and losers, harming less productive firms, particularly those in warmer regions, while benefiting more productive ones. Compared with the pooled marginal effect, the least-productive firms experience negative effects roughly ten times as large, while the most-productive firms experience positive effects roughly three times as large. Additionally, higher temperatures increase exit probability among the least productive firms in warmer regions. I highlight the distributional effects of climate change, and offer insights for adaptation policies.

Keywords: climate change; firms; climate damages; economic performance (search for similar items in EconPapers)
JEL-codes: D24 O13 O52 Q54 R11 (search for similar items in EconPapers)
Pages: 63 pages
Date: 2026-09-30
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Published in Journal of Environmental Economics and Management, 30, September, 2026, 140. ISSN: 0095-0696

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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:140233

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