In the Eye of the Storm: Firms and Capital Destruction in India

Martino Pelli, Jeanne Tschopp, Natalia Bezmaternykh and Kodjovi Eklou
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Natalia Bezmaternykh: Ryerson University

No 11-2019, Cahiers de recherche from Centre interuniversitaire de recherche en économie quantitative, CIREQ

Abstract: This paper examines the response of firms to capital destruction. Using Indian firm data we establish that tropical storms destroy up to 43% of firms’ capital. We use this exogenous shock to capital and find that within industry less productive firms suffer disproportionately more, both along the intensive (firm sales) and extensive (firm exit) margins. The effect found across industries is 33% larger, and indicates that capital destruction leads to a shift in sales towards comparative advantage industries. This build-back better effect is driven by firms active in multiple industries and, to a large extent, by shifts in the firm-level production mix within a firm’s active set of industries. Finally, while there is no evidence that firms adjust by investing in new industry lines, firms tend to abandon production in industries that exhibit lower comparative advantage. Our baseline estimates imply that for the top 25% of storms, the median firm’s industry sales decrease by at least 2.5% and the exit rate of the median firm increases by at least 2%.

Keywords: firms; capital destruction; creative destruction; hurricanes; India (search for similar items in EconPapers)
JEL-codes: F14 O10 Q54 (search for similar items in EconPapers)
Date: 2019-10
New Economics Papers: this item is included in nep-bec
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Related works:
Journal Article: In the eye of the storm: Firms and capital destruction in India (2023)
Working Paper: In the Eye of the Storm Firms and Capital Destruction in India (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:mtl:montec:11-2019

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