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Does Climate Affect Investments? Evidence from Firms in the United States

Author

Listed:
  • Petre Caraiani

    (Institute for Economic Forecasting, Romanian Academy; Bucharest University of Economics Studies)

  • Carolyn Chisadza

    (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa)

  • Rangan Gupta

    (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa)

Abstract

This study updates the existing literature on the adverse effects of climate change on firms' performance by providing an alternative perspective that climate change can have potential growth benefits. We examine the effects of climate shocks on firms' investments. Using a spatial autoregressive model with United States (U.S.) firm-level data from 1985 to 2019, we find that increased frequency of climate shocks is positively associated with investments for firms, with larger spillover effects on neighbouring firms. These findings remain consistent for various robustness checks which include sub-sample analysis, different outcome variables and controlling for financial characteristics of the firms. The results highlight that contrary to current evidence, climate change can create incentives for firms to increase investments in adjusting their production processes to cleaner technologies.

Suggested Citation

  • Petre Caraiani & Carolyn Chisadza & Rangan Gupta, 2024. "Does Climate Affect Investments? Evidence from Firms in the United States," Working Papers 202448, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:202448
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    More about this item

    Keywords

    Climate shocks; Corporate investments; Spatial econometrics; Production network structure;
    All these keywords.

    JEL classification:

    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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