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Riders on the storm: How do firms navigate production and market conditions amid El Niño?

Author

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  • Bas, Maria
  • Paunov, Caroline

Abstract

This paper investigates how heavy rainfalls resulting from the 2002–03 El Niño climate pattern affect Ecuadorian firms' production and market conditions. We show that affected firms' revenue productivity (TFP-R) and markups decrease. This is due to production efficiency losses (TFP-Q) and higher marginal costs of initially less efficient firms. Decreased product output prices in response to lower product demand explain the impact on initially more efficient firms. However, the shock neither affects market shares nor survival rates of initially less efficient firms. Consequently, the productivity distribution of Ecuador's industry is not affected by the shock. We also show a swift recovery of production and market demand in the immediate aftermath of the shock. Impacts in 2002–03 are like those of the 1997–98 rainfall shock. Differentiating firms by their TFP-R rather than their production efficiency indicates firms with better (worse) market positions can mitigate the negative impacts of the shock more (less).

Suggested Citation

  • Bas, Maria & Paunov, Caroline, 2025. "Riders on the storm: How do firms navigate production and market conditions amid El Niño?," Journal of Development Economics, Elsevier, vol. 172(C).
    • Handle: RePEc:eee:deveco:v:172:y:2025:i:c:s0304387824001238
    DOI: 10.1016/j.jdeveco.2024.103374
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    Cited by:

    1. Conteduca, Francesco Paolo & Panon, Ludovic, 2024. "Natural Disasters and Markups," MPRA Paper 123008, University Library of Munich, Germany.

    More about this item

    Keywords

    Natural disaster; Marginal costs; Markups; Firm output prices; Quantity productivity (TFP-Q); Revenue productivity (TFP-R); Firms; Ecuador;
    All these keywords.

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean
    • L6 - Industrial Organization - - Industry Studies: Manufacturing

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