Research

Publications


-- with Jingtian Wang and Mark Sanders

We study the local economic impacts of extreme weather events and the role of local finance in economic resilience. We use data on the physical intensities of extreme wind and precipitation events for 284 prefecture-level cities in China between 2004 and 2013. We estimate impulse response functions using a bias-corrected method of moments estimator to capture the dynamic responses of affected cities up to 5 years after such events. We find that extreme precipitation events depress the growth of local GDP per capita for multiple years, while the negative effects of storms vanish after the first year. We then use this model to measure the economic resilience of cities to extreme weather events. Regressions of economic resilience on indicators of the local financial structure suggest that cities with higher levels of debt are less resilient. Moreover, the presence of state-owned commercial banks appears to be instrumental to regional economic resilience. As extreme weather events are expected to become more frequent and severe due to climate change, our results inform the emerging debate about regional economic resilience to weather-related shocks.


Natural hazard shocks (such as natural disasters, extreme weather events, and climate shocks) have significant negative consequences for real economic activity. The banking sector can mitigate (or exacerbate) some of these consequences. This paper reviews the recent empirical literature on how banks are affected by such shocks, and how banks mediate the economic consequences to households and the real economy. After conceptualizing the theoretical transmission channels between the real economy and the banking sector, the review proceeds in two steps. First, it synthesises the existing literature on the direct effects of natural hazard shocks on bank stability, bank profitability, and credit supply. Then, the critical role of banking in economic recovery is analysed, including research on spillovers into unaffected regions through the banking system. Negative direct effects of natural hazard shocks on banks can be significant but are often transitory. Banking systems in less developed countries appear more vulnerable and are less able to maintain credit supply under adverse conditions. Banks that are better capitalised and that have incentives to support affected economies contribute to economic resilience. The review identifies several avenues for future research and highlights specific features and trade-offs relevant to policymakers interested in enabling the banking system to contribute to sustained economic development in the face of worsening physical climate risks.

Working Paper


The economic costs incurred by extreme weather events are substantial and increasing. In this study, we demonstrate how community banks – a type of financial institution with strong local ties and customer relationships – mitigate these costs at the local level. We use an event study model to demonstrate that US counties with higher community bank market shares experience fewer employment losses through extreme weather events. We then use bank-level analyses to demonstrate the mechanism – the small business credit supply. Community banks maintain their lending following extreme weather events, while other banks reduce it. These findings provide novel evidence on how local financial institutions strengthen economic resilience through extreme weather events. As policymakers develop strategies to mitigate the effects of extreme weather events, local finance may be a solution. 


In this paper, we hypothesize that the presence of young and small firms in an economy increases resilience to external shocks. We utilize a modified event study model to estimate the effect of the young and small firm employment shares on local employment growth through extreme weather events in US counties. We find that higher young and SME firm employment shares indeed significantly reduce employment losses. We contribute to the literature by showing that young and small firms may build resilience and help disaster recovery efforts at the local level. As regional economic resilience can be considered a public good, our findings add an argument to the case for supporting young and small and medium-sized firms.

Work in Progress


Small- and medium-sized enterprises (SMEs) form the backbone of the European economy, strengthening local employment and community vitality. However, their vulnerability to external shocks, particularly natural disasters such as floods, raises concerns about their long-term resilience. This paper investigates how the financial structure of SMEs influences their ability to withstand and recover from flood events. Given that leverage and debt maturity shape both the financial flexibility and risk exposure of firms, these factors are particularly relevant in times of crisis. Using a dataset of 6 million geocoded firm-year observations across 9 European countries and granular flood maps, we employ dynamic difference-in-differences estimators to assess the economic effects of floods on SME performance and the mediating effect of SME leverage and debt maturity. Our findings highlight a non-linear relationship between leverage and resilience. SMEs with high short-term debt face greater risks, while access to long-term debt resulting in moderate leverage offers an optimal balance for resilience.