Weathering the storm: sectoral economic and inflationary effects of floods and the role of adaptation
Key information
- Date
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2:00 pm to 3:00 pm
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- Online (MS Teams)
About this event
Discover how floods shape sectoral output and inflation in England—and why adaptation may not be enough once disaster strikes.
This paper investigates the impact of floods on economic output and prices at the sectoral level for local authorities in England using highly granular climate and economic data.
We use precipitation z-scores as an instrument for floods to deal with endogeneity stemming from adaptation capital and we obtain dynamic impulse responses to the shock on GDP and inflation with a local projection approach (LP-IV). We find significant heterogeneities across sectors in terms of size, timing and sign, with sectoral output (prices) declining (increasing) up to 20% (250 basis points) following an increase in the number of floods.
This evidence explains well the response of aggregate GDP and inflation found in the literature. Our estimates suggest that reduced investment can only partially explain the decline in output, and only in manufacturing. The response of the number and value of real estate market transactions is instead consistent with a wealth effect that is line with the demand side behaviour in wholesale and retail trade. To shed more light on the interaction among sectors, we use input-output tables and show that flood shocks propagate through the production network.
Finally, using local authority expenditure on flood defences and a proxy for adaptation capital, we find that investments in adaptation strongly reduce the likelihood of flooding, but are less effective at mitigating economic damages once a flood hits. Our analysis highlights the importance of disentangling the economic impact of climate change at the sectoral level and the need for adaptation investments.
Header image credit: Dibakar Roy via Unsplash.
About the speaker
Dr. Rebecca M. Mari is a senior manager in the Bank of England’s Climate Hub, the division responsible for climate policy across the Bank of England's policy remits.
Her policy career has span across the Bank's policy remits, with past positions held across the departments responsible for monetary policy, financial stability and international surveillance. She holds a PhD from the London School of Economics and her academic research investigates predominantly the impact of natural disasters on the economy through quasi-experimental methods.
She has covered various external advisory positions on the use of geospatial data for financial management and macro surveillance. She is also a Research Fellow at the LSE Department of Geography & Environment and a Fellow at the LSE Centre for Macroeconomics.
