In the Eye of the Storm Firms and Capital Destruction in India

70 Pages Posted: 30 Oct 2020

See all articles by Martino Pelli

Martino Pelli

Université de Sherbrooke; University of Montreal - Center for Interuniversity Research in Econometrics; Center for Interuniversity Research and Analysis on Organization (CIRANO)

Jeanne Tschopp

University of Bern - Department of Economics

Natalia Bezmaternykh

Ryerson University, Faculty of Arts - Department of Economics

Kodjovi Eklou

International Monetary Fund (IMF)

Multiple version iconThere are 2 versions of this paper

Date Written: September 2020

Abstract

This paper examines the response of firms to capital destruction, using a new measure of firmexposure to tropical storms as a negative exogenous shock on firms' capital stock. Drawing on apanel of Indian manufacturing firms between 1995 and 2006, we establish that, depending on theirstrength, storms destroy up to 75.3% of the fixed assets of the median firm (in terms of itsproductivity and industry performance). We quantify the response of firm sales within and acrossindustries and find effects akin to Schumpeterian creative destruction, where surviving firms buildback better. Within an industry, the sales of less productive firms decrease disproportionatelymore, while across industries capital destruction leads to a shift in sales towards more performingindustries. This build-back better effect is driven by firms active in multiple industries and, to alarge extent, by shifts in the firm-level production mix within a firm's active set of industries.Finally, while there is no evidence that firms adjust by investing in new industry lines, firms tendto abandon production in industries that exhibit lower comparative advantage.

Keywords: Comparative advantage, Total factor productivity, Capital productivity, Natural disasters, Productivity, WP, graphic tag0, ISIC firm, single-establishment firm, tropical storm

JEL Classification: D22, D24, Q54, F11, E24, E23

Suggested Citation

Pelli, Martino and Tschopp, Jeanne and Bezmaternykh, Natalia and Eklou, Kodjovi, In the Eye of the Storm Firms and Capital Destruction in India (September 2020). IMF Working Paper No. 20/203, Available at SSRN: https://ssrn.com/abstract=3721228

Martino Pelli (Contact Author)

Université de Sherbrooke ( email )

2500, Blvd de l'Université
Sherbrooke, Quebec J1K 2R1
Canada

HOME PAGE: http://sites.google.com/site/martinopelli

University of Montreal - Center for Interuniversity Research in Econometrics ( email )

C.P. 6128, Succursale Centre-ville
Montreal, Quebec H3C 3J7
Canada

Center for Interuniversity Research and Analysis on Organization (CIRANO) ( email )

2020 rue University, 25th floor
Montreal H3C 3J7, Quebec
Canada

Jeanne Tschopp

University of Bern - Department of Economics ( email )

Schanzeneckstrasse 1
Bern, CH-3001
Switzerland

Natalia Bezmaternykh

Ryerson University, Faculty of Arts - Department of Economics ( email )

Canada

Kodjovi Eklou

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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