Spain | Quantifying the economic impact of extreme climate events

Summary

This working paper analyzes the short-term effects of floods on employment in Spain. Using a dynamic spatial model and data from the 2024 DANA in Valencia, it shows that impacts are non-linear and that financial assistance accelerates labor market recovery.

Key points

• Key points:
• The global damage function reveals that mortality is the main predictor of economic losses, increasing damages by more than 328 percentage points of GDP for each additional death per 1,000 affected individuals in extreme events.
• Extreme climate events cause a contraction of nearly 2.8 percentage points in monthly employment growth in affected provinces, spreading to other regions through interprovincial trade linkages.
• In the case of the DANA in Valencia, the model accurately projected a cumulative employment drop of approximately 1.4 percentage points, closely matching the observed decline of 1.5 to 1.6 percentage points.
• A counterfactual simulation shows that if an identical flood had occurred in Barcelona, the national employment impact would have been 50% larger due to its greater economic weight and strong interregional linkages.
• Insurance payouts from the Insurance Compensation Consortium have a significant positive effect starting in the third month, with estimates showing that compensating 40% of losses can return employment to its pre-disaster trend.

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