Floods and firms: vulnerabilities and resilience to natural disasters in Europe

Abstract

Combining a rich database on natural hazards, granular flood hazard maps and detailed information on firm geolocalization, we study the dynamic impacts of floods on European manufacturing firms during the period 2007-2018. We find that water damages significantly and persistently worsen firms’ performance, and may endanger their survival. An average flood deteriorates total assets by about 2% in the year after the event, and up to 5% seven years out. Repeated flooding has milder impacts, suggesting that adaptation measures are adopted in flood-prone areas. We show how reallocation of economic activity within flooded regions can reconcile our results with the ’creative destruction’ hypothesis for natural disasters.

Keywords: natural disasters, floods, climate risk, firm performance, panel local projections

JEL Classification: D22, Q54, R11