Research
The impact of wildfires on productivity
Abstract: Scientists predict an increase in the frequency and severity of wildfires, driven by climate change. This highlights the need to assess the causal relationship between wildfires and firms' economic performance, specifically their productivity. This study focuses on Portugal as a case study to investigate the impact of wildfires on firms' productivity across different sectors. By matching firms' balance sheet data with the geographic distribution of burnt areas in Portugal in 2017 using postal codes, we distinguish between treated firms located in burnt areas and a control group of firms in unaffected regions. Employing a difference-in-differences approach, we analyze the average effect of the treatment on firms' productivity levels, exploring the channels through which productivity is affected, such as changes in investment and human capital-related variables. Our findings suggest an overall neutral effect. However, in the pulp and paper sector, we observe a positive impact on productivity for the average firm, driven by increased investment and human-related variables. The pulp and paper sector shows persistent positive effects over time. In contrast, micro and medium-sized firms experience in general a negative impact on productivity, accompanied by reduced investment. Quantifying these diverse impacts is crucial for identifying the most affected sectors and informing public policies that provide post-event support to affected firms.
The impact of wildfires on assets and employment (joint with Marta C. Lopes)
Abstract: This paper analyzes the impact of wildfires on firms’ assets and employment levels. We match the firms’ balance sheet information with a detailed geographic distribution of the burnt areas in Portugal in 2017, using the 7-digit postal code of the firms. This allows us to distinguish between treated firms, located in burnt areas, and a control group of firms in non-affected regions. Using a difference-in-differences approach, we find that treated firms have, on average, decreased their assets by 10.3% and employment levels by 9.4%, compared to firms in non-burnt areas. Considering the heterogeneity in firms’ asset structure, we also find evidence that the negative effect on assets is amplified in firms with higher shares of land and buildings. Firms in the agricultural sector most recent and smaller are more vulnerable to this type of event. Losses for a given region significantly affected by wildfires can be substantial, approximately 0.6% and 1% for assets and jobs, respectively. The quantification of these heterogeneous impacts is relevant to inform public policy when designing ex-post supporting measures for firms affected by wildfires.
Do droughts dry up the primary sector? Evidence from a quasi-natural experiment
Abstract: Climate models predict an increase in the frequency and severity of droughts in South Europe. This justifies the need to evaluate whether there is a causal effect of drought episodes on economic activity to properly design policy measures to tackle this issue. Using Portugal as a case study, this paper explores the regional disparities in terms of drought incidence, to analyze the impact of drought on economic indicators of firms in the primary sector. Combining two rich datasets of drought incidence and firm-level data, we distinguish between firms located in areas that experienced a drought in 2015 (treatment group) and otherwise (control group). The comparison of outcomes of interest, such as sales, number of workers, and expenses, that include the costs of goods sold and employee expenses, between the treatment and the control groups provides an estimate of the causal effect of drought, using a difference-in-differences design technique (DD). Our results suggest a negative impact on sales, the number of workers, and expenses in agricultural activities related to the growing of non-perennial crops. In particular, greater vulnerability to the 2015 drought is presented by micro, non-exporting, and more recent firms in this sector of activity. Heterogeneous effects suggest the implementation of a tailored drought management policy, taking into account the characteristics of the firms and the vulnerabilities of sectors heavily reliant on water, including micro and newly established firms.