Weathering the Storm: Supply Chains and Climate Risk

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

No 32218, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We characterize how firms structure supply chains under climate risk. Using new data on the universe of firm-to-firm transactions from an Indian state, we show that firms diversify sourcing locations, and that suppliers exposed to climate risk charge lower prices. We develop a general equilibrium spatial model of firm input sourcing under climate risk. Firms diversify identical inputs from suppliers across space, trading off the probability of climate disruptions against higher input costs. We quantify the model using data on 271 Indian regions. Wages are inversely correlated with sourcing risk, giving rise to a cost minimization-resilience tradeoff. Supply chain diversification unambiguously reduces real wage volatility, but ambiguously affects their levels, as diversification may come with high input costs. While diversification mitigates climate risk, it exacerbates the distributional consequences of climate change by reducing wages in regions prone to frequent shocks.

JEL-codes: E0 F0 F10 F18 F40 F62 (search for similar items in EconPapers)
Date: 2024-03
New Economics Papers: this item is included in nep-env and nep-opm
Note: DEV EFG IFM ITI
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.nber.org/papers/w32218.pdf (application/pdf)

Related works:
Working Paper: Weathering the Storm: Supply Chains and Climate Risk (2024)
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:nbr:nberwo:32218

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w32218

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().