Acclimate—a model for economic damage propagation. Part II: a dynamic formulation of the backward effects of disaster-induced production failures in the global supply network

Abstract

As global warming accelerates extreme weather events such as floods, droughts and storms are likely to increase in intensity and frequency. With regard to a highly globalized world economy built on complex supply and value-added chains, this trend will challenge societies locally and globally. Regional production disruptions might induce shock waves that propagate through the global supply network and evoke supra-regional shortages. While such cascading effects are promoted by forward linkages in the global economic network, the demand-induced backward dynamics respond in a more complex way. On the one hand, backward linkages may additionally spread economic losses and thus aggravate the disaster aftermath. On the other hand, the readdressing of demand enables a readjustment of production, which may weaken or even dissipate shock waves. Here, we analyze the backward effects of disaster-induced production breakdowns by complementing the numerical damage transfer model Acclimate by a demand side. Based on model simulations, we show that the possibility of production extension and demand readdressing may be crucial for mitigating economic losses in the course of an extreme event.