Asymmetric Industrial Reorganisation and Adaptive Misallocation Post Disasters

Maha Rehman ()
Additional contact information
Maha Rehman: Cornell University

Economics of Disasters and Climate Change, 2025, vol. 9, issue 2, No 4, 289-335

Abstract: Abstract This paper presents evidence on how firms adapted following the 2005 Pakistan earthquake, with a particular focus on the vulnerabilities that drove differential impact and the expectation of minimal government aid shaping firm behavior. Using a difference-in-difference methodology on a nationally representative panel of 390 firms, this paper explores three key dimensions: the immediate disruption, short-term adaptation, and long-term resilience. The seismic shock damaged stock and reduced sales asymmetrically. Fragile intermediaries, firms with moderate capital-labor ratios, experienced pronounced declines in sales, while labor-intensive firms, besides highly capital intensive firms demonstrated greater resilience. Firms prioritised skilled labor retention, reducing non-production roles, increasing operational hours, and diversifying across markets. There was no evidence of innovation. Building on these findings, this paper develops a theoretical model showcasing how adaptive misallocation, where firms over-invest in short-term adaptive measures such as increased reliance on backup infrastructure, driven by expectations of minimal government aid, diverts resources away from productivity, erodes public-private trust, and ultimately undermines resilience.

Keywords: Earthquake; Firms; Adaptation; Pakistan; Natural disasters; Manufacturing (search for similar items in EconPapers)
JEL-codes: H84 L25 O12 O14 O53 Q54 R11 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s41885-025-00170-y Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:ediscc:v:9:y:2025:i:2:d:10.1007_s41885-025-00170-y

Ordering information: This journal article can be ordered from
https://www.springer ... mental/journal/41885

DOI: 10.1007/s41885-025-00170-y

Access Statistics for this article

Economics of Disasters and Climate Change is currently edited by Ilan Noy and Shunsuke Managi

More articles in Economics of Disasters and Climate Change from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().