Going NUTS: The regional impact of extreme climate events over the medium term

Abstract

The projected increase in extreme climate events in the coming decades is likely to exacerbate the existing productivity and demographic challenges facing Europe. We study the dynamic, medium-run macroeconomic effects of heatwaves, droughts and floods in 1160 EU regions through the lens of a local projections, difference in difference framework. These events reduce output not only on impact but also into the medium term. Output is 1.5 percentage points lower two years after a summer heatwave, 3 percentage points lower four years after a drought and 2.8 percentage points lower four years after a flood. Both lower regional population and lower labour productivity per hour worked contribute to the medium-term decline.