Tracking the risks in production networks

This paper investigates the risks natural disasters pose to global production networks to inform resilience strategies through three complementary approaches. First, econometric analysis reveals that large disasters (by death toll) reduce annual export growth by approximately 6% in directly affected countries, with event studies demonstrating heterogeneous, often temporary, output impacts. Second, new global value chain exposure indicators measure natural disaster risk transmitted through trade linkages and uncover large heterogeneity with Korea, Japan, and Australia, and the Textiles, Basic metals, and ICT & Electronics sectors being most exposed to foreign natural disasters. Finally, simulations indicate that foreign disasters reduce manufacturing output in OECD Member countries on average by 0.12% annually. Finally, testing resilience strategies involving changes in the geography of input sourcing reveals trade-offs: optimising for one risk can increase others, and the optimal approach depends on whether the goal is to minimise average losses or enhance stability against extreme events.