Weather and Firm Production in Europe

Sammanfattning: With exceeding risks of climate change damages, the economical implications of changes in weather patterns for firm production have become increasingly important. Up until now, a European setting and more time relevant data have been missing in current research analyzing such implications, which is where this thesis resolves such shortcomings. Using the classical Cobb-Douglas production function, a bin approach, and NUTS 2 regions, the implications of weather fluctuations, in terms of daily max temperature and daily accumulated precipitation, on European firm's production were examined. The findings conclude that Europe's output decreases, on average, by 0.266% for each additional day above 30°C, relative to 15-20°C, corresponding to losses of 116 Million Euros in 2010 values. As for precipitation, an average output loss of 0.039%, corresponding to 17 Million Euros in 2010 values, is derived from each additional dry day relative to a day with precipitation level of up to 10 mm. An analysis of heterogeneous treatment effects showed distinctive differences across subregions within Europe, mainly driven by capital and labor factor sensitivities.