Maria Bas

Monday, May 15, 2023 — 01:00-02:00pm

Room 116, MSE

Productivity in the aftermath of a natural disaster: Evidence from the El Niño floods in Ecuador

Maria Bas

(Paris 1, CES)

co-authored with Caroline Paunov (OECD)

This paper investigates the effects of the 1997-98 El Niño floods on Ecuadorian firms’ production efficiency, measured by quantity-based total factor productivity (TFP-Q). The floods, which led to firm exit and shrunk production, reduced the TFP-Q of highly productive, capital-intensive and small firms. Moreover, the floods increased firms’ marginal costs as domestic intermediary input prices increased. Cheaper inputs from abroad counteracted additional cost increases. Firms’ markups decreased because firms could not pass through higher marginal costs to consumers by increasing output prices. Weak investments to repair damages from the shock resulted. Small firms’ product scope did not recover after the crisis with lower economies of scope likely contributing to persistent negative productivity effects. At the aggregate industry-province level, productivity decreased due to the shock in the year after the floods. More productive firms had more difficulties in recovering than less productive firms resulting in resource reallocation towards less productive firms.