Expecting Floods: Firm Entry, Employment, and Aggregate Implications

Using county-level and zip-code-level data from the United States during the period 1998–2018, we document: (i) Increased flood risk has a large negative impact on firm entry, employment, and output in the long run; (ii) Flood events reduce output in the short run while impact on firm entry and employment is limited. We then develop a quantitative spatial model to characterize how flood risk shapes firms’ location choices and employment. We find flood risk reduced US aggregate output by 0.53 percent in 2018, 23 percent of which stemmed from direct damages and 77 percent from long-run adjustments of firms and workers. (JEL D22, E23, E24, L11, Q54, R23, R32)