How Firms Adapt to Climate Change: Evidence from the Developing World
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As climate change intensifies, the private sector’s response—particularly in the agricultural sector—is a crucial determinant of resilience. This NBER paper by Arti Grover and Matthew E. Kahn (2024) surveys research on how firms in the developing world adapt to extreme weather, local pollution and natural disasters.
Main Insights: – Larger, more productive firms with better finance and management are more resilient to climate shocks, partly because many adaptation investments are lumpy and pay off at scale. – Smaller firms exposed to climate risk find credit harder and costlier to get. – Firms adapt by diversifying suppliers and production locations away from weather-exposed areas. – Insurance coverage for small and medium firms in developing markets has expanded slowly.
Policy and Private Sector Implications: – The authors list four policy levers: developing insurance markets, better information on risks and insurance, upgrading managerial capabilities, and financial support for rebuilding firms.
Conclusion: This paper underscores that climate adaptation is uneven across firm sizes and sectors. Supporting access to finance, insurance and better risk information can empower more firms to invest in resilience.