We Are All in the Same Boat: Cross-Border Spillovers of Climate Risk through International Trade and Supply Chain

January 22, 2021

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Format: Chicago

Alan Feng, and Haishi Li. We Are All in the Same Boat: Cross-Border Spillovers of Climate Risk through International Trade and Supply Chain, (USA: International Monetary Fund, 2021) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Are assets in a landlocked country subject to sea-level rise risk? In this paper, we study the cross-border spillovers of physical climate risks through international trade and supply chain linkages. As we base our findings on historical data between 1970 and 2018, we observe that globalization increased the similarity of countries’ global climate risk exposures. Exposures to foreign climatic disasters in major trade partner countries (both upstream and downstream) lower the home-country stock market valuation for the aggregate market and for the tradable sectors. We also find that exposures to foreign long-term climate change risks reduce the asset price valuations of the tradable sectors at home. Findings in this paper suggest that climate adaptation efforts in a country can have positive externalities on other countries’ macrofinancial performance and stability through international trade.

Subject: Climate change, Economic sectors, Environment, Financial markets, Financial sector, Foreign currency exposure, Money, Natural disasters, Stock markets

Keywords: Assets ratio, Climate change, Climate risk, Disaster damage, Expected return, Exposure measure, Financial sector, Financial spillover, Financial stability, Foreign currency exposure, Global, Natural disasters, Risk exposure, Spillover index, Stock markets, Supply chain, WP

Publication Details

Pages:

57
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2021/013
Stock No:

WPIEA2021013
ISBN:

9781513564586
ISSN:

1018-5941

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