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How Do Floods Affect Firms’ Economic Performance?: Evidence from Two Cyclones in New Zealand

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  • Cristhian D. Prieto
  • Ilan Noy

Abstract

Floods are among the most frequent and destructive natural hazards worldwide, yet their economic impacts remain poorly understood. This paper examines the effects of two cyclone-induced floods on firms’ economic performance in New Zealand. To identify flood damage, we propose a novel method using high-resolution satellite imagery to track changes in ground vegetation before and after the cyclones. By integrating this information with detailed business administrative records and enterprise survey data, we construct a unique plant-level dataset to estimate the flooding causal effects. Using a Difference-in-Differences (DID) approach, we find that firm premises located in flood-affected areas experienced significant declines in gross output and sales, alongside increased losses in profit and value-added. Contrary to common belief, our analysis reveals that capital damage and labour displacement, rather than productivity losses, are the primary channels through which flooding affects firms. Plants responded to these events by liquidating inventories and cashable assets, though no evidence of relocation is found. Our results are robust to various econometric specifications and alternative estimation methods, including the Synthetic Difference-in-Differences (SDID) estimator.

Suggested Citation

  • Cristhian D. Prieto & Ilan Noy, 2024. "How Do Floods Affect Firms’ Economic Performance?: Evidence from Two Cyclones in New Zealand," CESifo Working Paper Series 11430, CESifo.
    • Handle: RePEc:ces:ceswps:_11430
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    References listed on IDEAS

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    1. Andrea Leiter & Harald Oberhofer & Paul Raschky, 2009. "Creative Disasters? Flooding Effects on Capital, Labour and Productivity Within European Firms," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 43(3), pages 333-350, July.
    2. Diego Ciccia, 2024. "A Short Note on Event-Study Synthetic Difference-in-Differences Estimators," Papers 2407.09565, arXiv.org, revised Nov 2024.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    floods; firms; production; cyclones; coping strategies; labour; capital; productivity; DID; SDID;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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