Climate Hazards and Resilience in the Global Car Industry
Climate change will intensify natural disasters, potentially impacting firms’ spatial organization. Using global car industry data and an event-study design, I demonstrate floods reduce plant production, prompting firms to reallocate to unaffected plants. I develop a novel, quantitative, multiregion model where firms choose plant locations and capacities to maximize expected profits amidst local disruption risks, capturing incentives for location diversification and disruption hedging. Using this model, plant location and capacity choices are computed under varying weather disruption probabilities from climate scenarios. With heightened risks, firms build additional, smaller plants with larger spare capacities, causing productivity losses and higher consumer prices.
