The Globalization of Climate Change: Amplification of Climate-Related Physical Risks Through Input-Output Linkages

35 Pages Posted: 20 May 2024

See all articles by Richard Senner

Richard Senner

Swiss National Bank - Financial Stability

Stephan Fahr

European Central Bank

Andrea Vismara

Vienna University of Economics and Business

Multiple version iconThere are 2 versions of this paper

Date Written: December 18, 2023

Abstract

While global supply chains have recently gained attention in the context of the Covid-related crisis as
well as the war in Ukraine, their role in transmitting and amplifying climate-related physical risks across
countries has received surprisingly little attention. To address this shortcoming, this paper for the first
time combines country-level GDP losses due to climate-related physical risks with a global Input-Output
model. More specifically, climate-related GDP-at-risk data are used to quantify the potential direct
impact of physical risks on GDP at the country or regional level. This direct impact on GDP is then used
to shock a global Input-Output (IO) model so that the propagation of the initial shock to country-sectors
around the world becomes observable. The findings suggest that direct GDP loss estimates can severely
underestimate the ultimate impact of physical risk because trade can lead to losses that are up to 30 times
higher in the EA than what looking at the direct impacts would suggest. However, trade can also mitigate
losses if substitutability across country-sectors is possible. Future research should (i) develop more
granular, holistic, and forward-looking global physical risk data and (ii) examine more closely the role
of both partially substitutable outputs, and critical outputs that are less substitutable or not substitutable
at all, such as in the food sector.

Keywords: Supply chains, physical risk, climate change

JEL Classification: E01, Q54, Q56, F18

Suggested Citation

Senner, Richard and Fahr, Stephan Alexander and Vismara, Andrea, The Globalization of Climate Change: Amplification of Climate-Related Physical Risks Through Input-Output Linkages (December 18, 2023). Available at SSRN: https://ssrn.com/abstract=4832574 or http://dx.doi.org/10.2139/ssrn.4832574

Richard Senner (Contact Author)

Swiss National Bank - Financial Stability ( email )

Boersenstrasse 15
Zurich, CH-8022
Switzerland

Stephan Alexander Fahr

European Central Bank ( email )

Kaiserstr. 29
Frankfurt am Main, DE 60066
Germany

Andrea Vismara

Vienna University of Economics and Business ( email )

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