Borders, Roads and the Relocation of Economic Activity Due to Extreme Weather

Weather events reduce economic activity at the local level and may lead to the relocation of economic activity towards nearby locations. But how are the economic effects of weather events transmitted between locations? And, which role does the connection of small economic units play? This paper takes a granular approach to identify the role of connectivity on economic activity due to severe weather events. We combine a grid-cell level dataset on economic activity and weather events with global geographic information on national borders and road networks. We explore how a potential disruption of connectivity through an international border affects local spillovers in case of weather shocks. Next, we use road infrastructure as a proxy for overall connectivity to examine how this affects the diversion of economic activity across local economic units. Results suggest that international borders limit economic relocation due to extreme weather to domestic neighboring cells. The existence of major road infrastructure between locations is key to the relocation of economic activity due to weather events. Without a transport network, no spillovers between local economic units exist or are very limited and costly.