How do floods change international supply chains: Evidence from Uganda

Abstract

This paper studies how floods affect firms’ participation in domestic and international supply chains, using administrative firm-level data from Uganda. We combine detailed customs transactions, VAT, and income tax records from the Uganda Revenue Authority with high-resolution geocoded flood data to identify the causal impact of floods on firms’ trading behaviour and performance. Exploiting spatial and temporal variation in flood exposure within a difference-in-differences framework, we examine both short-run disruptions and medium-run adjustments in firms’ supply-chain linkages. We find that floods significantly reduce firms’ likelihood of exporting and importing, as well as trade volumes, in the year of exposure. While international transactions decline sharply, domestic transactions are relatively less affected, indicating partial substitution toward local markets. Beyond these immediate effects, floods induce persistent reallocation in supply-chain relationships: some firms exit international markets, while others adjust by diversifying products or trading partners upon re-entry. Our results highlight that climate shocks do not only generate temporary disruptions but can also reshape firms’ integration into supply chains. The findings contribute to the literature on climate change, trade, and firm dynamics by providing novel evidence from a low-income country context. They also highlight the importance of policies that enhance supply-chain resilience and support firm adjustment in the face of increasing climate risk.