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Entry, exit, and market structure in a changing climate

Author

Listed:
  • Cascarano, Michele
  • Natoli, Filippo
  • Petrella, Andrea

Abstract

Extreme temperatures have long-run effects on the size and composition of a country’s business sector. Administrative data on the universe of Italian firms show that higher temperatures slow the growth of active firms in the market, mainly due to a drop in entry rates and an increase in exit rates in warmer areas. Balance sheet data analyses suggest a dichotomy between large, young companies, which adapt and survive improving their profitability, and older, smaller-sized firms persistently suffering from hot temperatures. According to an average climate scenario, temperatures will impact business dynamics further in the future, exacerbating the differences between warmer and colder areas.

Suggested Citation

  • Cascarano, Michele & Natoli, Filippo & Petrella, Andrea, 2025. "Entry, exit, and market structure in a changing climate," European Economic Review, Elsevier, vol. 176(C).
    • Handle: RePEc:eee:eecrev:v:176:y:2025:i:c:s0014292125000777
    DOI: 10.1016/j.euroecorev.2025.105027
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    More about this item

    Keywords

    Climate change; Temperatures; Firm dynamics;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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