Sectoral Impact and Propagation of Weather Shocks

IMF Working Papers, March 10, 2023

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Local weather shocks affect local economic output and propagate through production networks.
Agriculture is the most harmed sector by heat shocks, droughts and cyclones.
Sectors at later stages of the supply chain suffer substantial and persistent losses over time due to domestic and foreign heat shocks in other sectors, based on input-output interlinkages.
A counterfactual analysis of the average annual output loss accounting for heat shocks across trade partners shows a substantial underestimation of the economic cost of temperature increases since 2000.

Analysis uses a six-sector global dataset over the past fifty years.
Transmission of weather shocks is examined across sectors, countries and over time using input-output interlinkages.
Extreme weather events and weather fluctuations (including heat shocks, droughts, cyclones) are the weather shock types analyzed.

Focusing solely on domestic impacts likely understates the full economic cost of temperature increases because cross-border production linkages amplify and transmit losses.
Accounting for trade-partner heat shocks materially changes estimates of average annual output loss since 2000.

Guglielmo Zappalà, "Sectoral Impact and Propagation of Weather Shocks", IMF Working Papers 2023, 053 (2023).