We are All in the Same Boat: Cross-Border Spillovers of Climate Shocks through International Trade and Supply Chains

Abstract

<p>Are landlocked countries at risk from sea-level rise? We identify a new mechanism where natural disaster shocks influence countries’ macroeconomic performance through cross-border trade spillovers. Analysing global data on climate disasters, infrastructure, trade and the macroeconomy from 1970 to 2019, we find that climate disasters impact ports and critical infrastructure for international trade and reduce imports, exports and economic output in both the affected country and its major trade partner (both upstream and downstream) countries. The GDP effects on main upstream and downstream countries are as large as those in directly impacted countries: while directly affected countries offset climate disaster damage with increased government spending and investment, trade partners do not. Effective adaptation efforts, including building climate-resilient infrastructure and implementing disaster relief measures, must account for the cross-border spillover effects of climate disasters.</p>