Abstract
Do firms sort in response to hurricane risk? We expand upon standard models of Tiebout sorting for households and explore the effect of hurricanes on firm mobility. Specifically, we examine if firms are more likely to move after experiencing category 3 or higher strength hurricane winds. Using the National Establishment Time-Series (NETS) data for Florida, we find that hurricanes are associated with an increase in the likelihood an establishment moves, especially within the state of Florida. Firms are less likely to move into Florida after a storm, suggesting that the costs of operating within the state change immediately after the storm. We explore various mechanisms that could be driving these results, finding specifically that FEMA assistance reduces mobility and that mobility is more likely due to the initial damage than a change in risk perceptions. Our findings are important for policy-makers as they show that hurricanes impact firm mobility and provide indicators of what is driving the movement after a storm.
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Notes
Gallagher et al. (2023) examined the impact of tornadoes on personal finance and business locations. Hurricanes have an impact over a larger geographic area, often affecting multiple counties versus just a few blocks like a tornado. The extent of damage from a hurricane makes a border analysis more problematic in our application because an appropriate control group that was unaffected by the storm is unlikely to be located in the same locality.
Him and Lee (2023) examined the impact of earthquakes on household migration, finding significant out-migration of residents after the natural disaster.
The Saffir–Simpson scale categorizes wind speeds from hurricanes into five separate categories. Category 1:119–153 km/h, Category 2: 154–177 km/h, Category 3: 178–208 km/h, Category 4: 209–251 km/h, Category 5: ≥ 252 km/h. https://www.nhc.noaa.gov/aboutsshws.php
The “eye” is the name used for the center of the storm. The strongest winds are experienced at the edge of the hurricanes “eye.”
Hurricanes may also impact new business activity or cause existing businesses to shut down operations. In this paper, we only consider mobility as we focus on the sorting behavior of firms.
One concern is that hurricanes causes both wind and flood damages. However, there are various types of flooding that could be modeled (e.g., fluvial-overflow, pluvial-rainfall, and coastal-storm surge) which could have different impacts on a firm’s mobility decision. Thus, we assume that being impacted by a hurricane accounts for the associated perils (land slides, flooding, and tornadoes). Investigating the effect of these different perils remains an area for future work.
The points of interest are the census tract centroid points in the shapefile.
The radius of maximum wind is sometimes referred to as the radius of destruction. This is the area bordering the eye of the hurricane at which point the strongest winds are recorded.
Hurricane Georges made landfall as a category 3 storm in Florida but is not included in our analysis due to our definition of an impacted county. We require that at least 50% of the tracts in the county experienced category 3 or higher wind speeds. While tracts experienced category 3 winds from Hurricane Georges, there was not one county where the majority of the census tracts experienced these wind speeds.
Establishment geolocation is reported at different levels: block face, block group, census tract centroids,
zipcode centroid, street level, or not provided/coded. In our sample, 98.9% of our sample is geocoded at the block face (front of the building) which is the most accurate possible.
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Appendices
Appendix 1: Robustness checks
Appendix 1.1: Duration of hurricane
When an area experiences a hurricane, there are two main sources of damage—high winds and flooding. If an area experiences hurricane strength winds, then it is typical for the area to experience wind damage of some form. However, if the storm passes through quickly, then the area may not experience much flooding and will have less water-related damages. Therefore, if an area experiences a hurricane of longer duration (i.e., the hurricane moves slowly over an area), then it is more likely to experience damage due to flooding. We examine if this creates a differential effect on our baseline results presented in the main text.
In Tables 18-Appendix and 19-Appendix, we examine the impact of experiencing a storm for a longer duration on the probability of moving. Our duration-dependent variable is in 3-h increments. This means that while the variable is not continuous, higher values still indicate that the hurricane was over the county for a longer period of time. This table follows the same structure as the main results except that we use this alternative measure of hurricane intensity. The results in Tables 18-Appendix and 19-Appendix follow the same pattern as our baseline results, suggesting that experiencing a hurricane for longer—and thus increasing the likelihood of flooding and water damage—does not have a different impact.
Appendix 1.2: Back-to-back storms
Storms in back-to-back years may have a greater impact on an area. If a business owner puts forth the effort to recover from the initial storm over a year, then is hit by a storm again the next year, this may be too much in terms of having the ability to rebuild and recover 2 years in a row. Therefore, we consider the impact of experiencing category 3 or higher storms in consecutive years, which occurred in 2005, 2017, and 2018.
Table 20-Appendix shows an increase in the likelihood of moving, moving within and moving out of Florida, but no statistically significant effect is found for moving into Florida. Hurricane recovery is typically a multi-year effort, and the additional devastation can create opportunities for savvy business owners who have the ability to take advantage of post-storm incentives. When looking at within Florida movement in Table 21-Appendix, our results indicate that there is an increase in likelihood in moving within Florida, regardless of origin or destination being impacted. This is consistent with our baseline results (Tables 22 and 23).
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Goulbourne, R., Ferreira Neto, A.B. & Ross, A. Do businesses “vote with their feet” Too? Examining firm mobility in response to hurricane risk. Ann Reg Sci (2024). https://doi.org/10.1007/s00168-024-01278-x
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DOI: https://doi.org/10.1007/s00168-024-01278-x