Natural disasters and establishment performance: evidence from the 2011 Rio de Janeiro landslides

Abstract

This paper investigates the economic consequences of the 2011 Rio de Janeiro landslides, considered the worst weather-related natural disaster that occurred in Brazil. We evaluated the effect of the disaster on the business establishment performance and investigated the role of the main recovery policy designed for exposed business: the subsidized credit provided by the Brazilian Development Bank (BNDES). To define the affected establish ments, we use georeferenced data of landslide points and calculate a simulated coverage radius of each specific point based on a prediction model of maximum run-out distance. Using a Difference-in-Differences approach, we show that establishments exposed to the disaster reacted to the unexpected shock by reducing the number of employees rather than closing their business or cutting the wages. Also, the establishments affected by the shock increased their probability of obtaining subsidized credit. This increase in subsidized credit was partially effective in mitigating the negative effects of the shock since it prevented the exposed companies from closing but did not revert the job losses.