Floods and the Duplication of Production: Evidence from the Global Car Industry

Michele Fioretti, Sophia Praetorius and Thierry Mayer

Papers from arXiv.org

Abstract: Floods are becoming more frequent and can disrupt global supply chains. We study how multinational car makers adapt vehicle and key parts production to flood risk, and how their choices interact with insurance and public flood defences. Using plant-level data and a manually verified flood record in a staggered difference-in-differences design, we find that car makers duplicate production rather than move it away from flooded plants. Even more than five years after a flood, an engine is 19 percentage points more likely to be made in two or more plants, usually abroad and for cars assembled nearby, while the flooded plant's output shows no persistent decline beyond a temporary loss in the flood year. Firms duplicate only where adjustment costs are low, i.e. when a plant of theirs abroad already makes the same engine family. Flooded vehicle model versions are duplicated only temporarily, and transmission programs are not duplicated. Suggestive evidence that firms duplicate more where insurance is likely expensive and plants lack flood defences points to substitution between redundancy, insurance and public protection.

Date: 2026-10
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