Extreme weather events and efficiency in Italy's food sector: Does institutional quality matter?

Abstract

This study investigates the impact of extreme weather events on firm-level efficiency, contributing to the ongoing discourse on climate change adaptation within the firm. While existing research presents inconsistent findings regarding the efficiency implications of weather disasters, our analysis offers novel insights into both the short-term and long-term dimensions of this relationship. Using a large sample of Italian food manufacturers, and applying Data Envelopment Analysis (DEA) and Stochastic Frontier Analysis (SFA), our results reveal that while extreme weather initially reduces technical efficiency, it can stimulate longer-term improvements, through mechanisms such as investment and performance-driven adjustments. Notably, institutional quality significantly mitigates short-term disruptions and amplifies long-term gains. Therefore, our analysis underscores the broader importance of effective governance in enhancing productive efficiency, reinforcing similar conclusions drawn from studies in other sectors. These findings suggest that policy makers should bolster resilience via both short-term relief and long-term institutional strengthening.