CSH Talk by Elsa Schönwiese

The unfolding climate crisis increases the likelihood of extreme weather events, such as heatwaves and floods, but their economic impacts are still poorly understood. In this research project, we propose a novel framework to quantify these costs by translating climate risks into firm-level economic output shocks and capturing indirect economic losses in supply chains using the Economic Systemic Risk Index (ESRI). This approach captures the direct and indirect economic output losses of all firms in a national economy in the event of such extreme weather events. We apply our framework to the firm-level supply network of Ecuador, which is available to us through value-added tax data. Specifically, we construct extreme heat shocks for agricultural firms and use the ESRI algorithm to assess the associated direct and indirect economic losses. We examine different extreme heat scenarios and their effects on various regions and economic sectors, highlighting vulnerabilities to the climate crisis within Ecuador’s supply network. This initial investigation forms the basis for exploring the economic impacts of other climate risks, such as floods and landslides, in future research.