The role of supply chains in the transmission of climate-related physical risks across countries has received surprisingly little attention so far.

Our research uses a novel approach to engage with this gap. We use climate-related GDP-at-risk data to quantify the potential direct impact of physical risks on GDP at the country or regional level. This direct impact on GDP is then used to shock a global Input-Output model so that we can estimate the propagation of the initial shock to country-sectors around the world.

The findings suggest that direct GDP loss estimates can severely underestimate the ultimate impact of physical risk: trade disruptions can lead to GDP losses that are up to 30 times higher in the EA than what looking at the direct impacts of climate change would suggest. However, trade can also mitigate losses if substitutability across country-sectors’ inputs is possible.

S. Fahr, R. Senner, A. Vismara, The globalization of climate change: How Interconnected Economies Amplify Physical Risks, SUERF Policy Brief 969 (2024).