Entry, exit, and market structure in a changing climate

Michele Cascarano, Filippo Natoli () and Andrea Petrella ()
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Filippo Natoli: Bank of Italy

No 1418, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: Climate change has long-term effects on the size and composition of a country's business sector. Using administrative data on the universe of Italian firms, we find that an increase in the number of very hot days per year persistently reduces the growth rate of active firms in the market in the medium run. This is due to a drop in firm entry and an increase in firm exit, with relocation playing a minor role. A firm-level investigation reveals a dichotomy between firms that persistently suffer as a result of higher temperatures and those that improve their profitability by adapting to a hotter climate: a combination of size and age best identifies the two groups, where older, smaller-sized firms lie at one extreme and younger, larger firms at the other. According to an average climate scenario, the projected evolution of local temperatures will impact firm demography further, also exacerbating the divergent effects across warmer and colder areas over the current decade.

Keywords: climate change; temperatures; firm dynamics (search for similar items in EconPapers)
JEL-codes: D22 Q54 R12 (search for similar items in EconPapers)
Date: 2023-07
New Economics Papers: this item is included in nep-bec, nep-com, nep-ent, nep-env, nep-inv, nep-mac, nep-sbm and nep-tid
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Working Paper: Entry, exit and market structure in a changing climate (2022)
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