The macroeconomic implications of extreme weather events

Extreme weather events are increasing in frequency and intensity, yet their macroeconomic impacts remain poorly understood. This paper provides novel regional-level evidence on the economic consequences of extreme weather events across OECD countries. Using a newly constructed dataset covering over 1,600 regions in 31 countries from 2000 to 2018, we estimate both the direct and spatial spillover effects of extreme weather shocks on regional GDP, employment, and migration. We find that the most severe events reduce regional GDP by 2.2%, with losses of around 1.7% persisting after five years. Spatial spillovers are negative and economically significant: a severe disaster occurring within 100 km of a region leads to a further 0.5% decline GDP—equivalent to almost a quarter of the direct impact. Aggregated across time and countries, extreme weather shocks are associated with average annual output losses of over 0.3% of GDP in OECD countries, with spillovers accounting for approximately half of the total impact. The capacity of regions to withstand and recover from disasters also varies significantly: richer, more economically diverse and regions with greater population mobility are more resilient as well as those in countries with greater fiscal space.