Productivity in the Aftermath of a Natural Disaster : Evidence from the El Niño Floods in Ecuador

This paper investigates the effects of the 1997-98 El Niño floods on Ecuadorian firms’ production efficiency, measured by quantity-based total factor productivity (TFP-Q). The floods, which led to firm exit and shrunk production, reduced the TFP-Q of highly productive firms and of exporting firms. This results from the stronger negative productivity impact of the shock on firms with high capital-, input- and energy-intensity. Moreover, the floods increased firms' marginal costs as domestic intermediary input prices went up even if firms imported cheaper inputs. Firms’ markups decreased since firms could not raise their output prices. In the years following the crisis, the average firm experienced negative productivity effects due to negative investments and lower than pre-crisis economies of scope. Also, no positive entry dynamics occurred. Although initially more productive firms increased their investments, the floods led to a negative reallocation from more to less productive firms within Ecuadorian provinces’ industries