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Using county-level and ZIP-code-level data from the United States during 1998–2018,
we document: (1) increased flood risk has a large negative impact on firm entry, employment,
and output in the long run; and (2) flood events reduce output in the short
run while their impact on firm entry and employment is limited. We then develop a
quantitative spatial model to characterize how flood risk shapes firms’ location choices
and workers’ employment. We find that flood risk reduced U.S. aggregate output by
0.53% in 2018, 23% of which stemmed from direct damages and 77% from long-run
adjustments of firms and workers.
