Expecting Floods: Firm Entry, Employment, and Aggregate Implications / Ruixue Jia, Xiao Ma, Victoria Wenxin Xie.

Format:

Book

Author/Creator:

Jia, Ruixue.

Contributor:

National Bureau of Economic Research.

Ma, Xiao.

Xie, Victoria Wenxin.

Series:

Working Paper Series (National Bureau of Economic Research) no. w30250.

NBER working paper series no. w30250

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2022.

Summary:

Flood events and flood risk have been increasing in the past few decades and have important consequences for the economy. Using county-level and ZIP-code-level data from the United States during 1998-2018, we document that (1) increased flood risk has a large negative impact on firm entry, employment, and output in the long run; and (2) flood events reduce output in the short run while their impact on firm entry and employment is limited. Motivated by these findings, we construct a spatial equilibrium model to characterize how flood risk shapes firms' location choices and workers' employment, which we use to estimate the aggregate impact of increased flood risk on the economy. We find that flood risk reduced U.S. aggregate output by 0.52% in 2018, 80% of which stemmed from expectation effects and 20% from direct damages. We also apply our model to study the distributional consequences and forecast the impact of future changes in flood risk. Our results highlight the importance of considering the adjustment of firms and workers in response to risk in evaluating the consequences of natural disasters.

Notes:

Print version record

July 2022.