Floods and the Duplication of Production: Evidence from the Global Car Industry
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Michele Fioretti, Sophia Praetorius, Thierry Mayer · arXiv: 2611.01329v1 · Summary page
Why cover this story this week?
After floods, carmakers add backup rather than retreat
A flooded factory need not become an abandoned factory. Using plant-level production data, a manually verified flood record and a staggered difference-in-differences design, researchers find that multinational carmakers respond by duplicating some production elsewhere rather than permanently reducing output at the flooded site. Even more than five years after a flood, an engine is 19 percentage points more likely to be produced at multiple plants, usually with the additional production abroad.
That response depends on having a relatively cheap route to redundancy: duplication occurs where another company plant already makes the same engine family. Vehicle-model duplication is temporary, while transmission programs show no duplication. The broader lesson is that adaptation to climate risk may add overlapping production capacity rather than simply move factories out of danger. Evidence suggesting more duplication where insurance is expensive and public flood protection is absent remains suggestive, not conclusive.
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