Droughts’ Trade Effects and Physical Infrastructure

In this paper, we study trade effects of droughts transmitted via damaged infrastructure. In particular, we suggest that droughts affect export via negative effects on infrastructure – land and water transport, electricity and water supply. Our estimations, based on data for export in 194 countries in 1997-2015, show that negative effects of droughts for export are indeed transmitted via damaged infrastructure. The strongest short-term effects are caused by most severe droughts (with fatalities) for export of industries with high reliance on electricity supply, land and water transport. The strongest long-term effects come from severe droughts with fatalities to export of industries with high dependence on electricity supply. Length of the drought is negatively associated only with export of industries with high reliance on water supply