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Shocks and Stability: Understanding Trade Resilience to Natural Disasters

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  • Liu, Jiawen

Abstract

International trade networks are increasingly vulnerable to disruptions from natural disasters, yet the resilience of global trade flows remains insufficiently understood. This study examines how different types of natural disasters—including earthquakes, droughts, extreme temperatures, floods, and storms—affect bilateral trade, and investigates whether structural factors such as export diversification and sectoral positioning shape trade resilience. Our analysis proceeds in two stages. In the first stage, we employ a gravity model estimated using Poisson Pseudo Maximum Likelihood (PPML) on bilateral trade data from Comtrade and disaster data from EM-DAT to quantify the impact of disasters on export volumes. We find that upstream industries experience the most severe trade contractions—particularly due to extreme temperatures and storms—while downstream industries are relatively less affected. In the second stage, we adopt a moment-based three-step method to assess trade resilience by estimating the conditional probability of trade stability following a shock. Our results indicate that export diversification enhances resilience, but its effectiveness varies by economic context: high-income countries benefit more from complexity-driven trade adjustments, whereas low-income economies are more adversely affected by disruptions. Additionally, we find that disasters in trading partner countries generate strong spillover effects in vulnerable economies.

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  • Liu, Jiawen, 2025. "Shocks and Stability: Understanding Trade Resilience to Natural Disasters," 2025 AAEA & WAEA Joint Annual Meeting, July 27-29, 2025, Denver, CO 361043, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea25:361043
    DOI: 10.22004/ag.econ.361043
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