How do regional extreme events shape supply-chain trade?

This study examines how regional extreme weather events (REWE) affect a country's participation in supply-chain trade (SCT) using comprehensive country-pair data spanning from 1995 to 2018, resulting in 26,720 observations. SCT participation is measured as the value-added contained in exports, considering both backward and forward linkages from the perspective of a reference country. REWE, in this context, refers to storms that impact multiple countries simultaneously. Through rigorous robustness checks, the primary findings indicate that REWE play a critical role in shaping SCT, as they disrupt the regional value chain among the affected countries. However, the impact of REWE is less pronounced when countries are geographically distant or have strong economic connections with regional trade blocs. These effects of REWE are transmitted through sourcing costs. The results remain consistent across various model specifications, alternative measures of REWE, and when addressing endogeneity concerns. The findings of this study carry important implications for both managerial practices and policy-making.