Can Trade Help Mitigate Risk From Weather Disruptions?

Juanma Castro-Vincenzi, Simon Farbman, Gaurav Khanna, Nicolas Morales and Nitya Pandalai-Nayar

Richmond Fed Economic Brief, 2025, vol. 25, issue 17

Abstract: As weather-related disruptions become more frequent, firms face increasing risks to their supply chains. To safeguard against these shocks, businesses are adopting strategies to enhance resiliency and ensure that disruptions to key suppliers don't halt operations. In the 2024 working paper by several authors of this article (Juanma, Gaurav, Nicolas and Nitya), we explore how Indian firms mitigate risks from weather events by diversifying their input sources across multiple regions. Using detailed transaction data from Indian firms, we highlight multisourcing as a crucial risk-management strategy that gives rise to a cost/resilience trade-off. To deepen this analysis, we develop a structural model of the Indian economy, providing a framework to examine how firm adaptation impacts wages and prices. The model also serves as a predictive tool, forecasting how businesses will adjust to any future weather risks and quantifying the broader implications for interregional inequality.

Keywords: trade; international economics; weather; supply chains (search for similar items in EconPapers)
Date: 2025
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