American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Firm Adaptation in Production Networks: Evidence from Extreme Weather Events in Pakistan
American Economic Review
(pp. 4282–4325)
Abstract
This paper considers how far private adaptation may reduce future vulnerability to climate risks. Using data on monthly firm-to-firm transactions from Pakistan, we find that flood-affected firms are more likely to relocate to safer ground and shift purchases toward suppliers in less flood-prone regions and reached via less flood-prone roads. The results indicate that firms are imperfectly informed about flood risk and update their beliefs following floods. We quantify aggregate impacts using a spatial model of endogenous production network formation. The findings suggest that firms' learning will shape the economic impact of increasingly frequent climate-related disasters.Citation
Balboni, Clare, Johannes Boehm, and Mazhar Waseem. 2026. "Firm Adaptation in Production Networks: Evidence from Extreme Weather Events in Pakistan." American Economic Review 116 (11): 4282–4325. DOI: 10.1257/aer.20241027Additional Materials
JEL Classification
- D22 Firm Behavior: Empirical Analysis
- L14 Transactional Relationships; Contracts and Reputation; Networks
- O13 Economic Development: Agriculture; Natural Resources; Energy; Environment; Other Primary Products
- O14 Industrialization; Manufacturing and Service Industries; Choice of Technology
- Q54 Climate; Natural Disasters and Their Management; Global Warming
- R32 Other Spatial Production and Pricing Analysis