Droughts and Firms in Tunisia

Overview & Synopsis

Tunisia is among the Mediterranean’s most climate-exposed countries facing acute water scarcity. Although a growing literature has documented the effects of extreme weather on firms, few studies have used longitudinal administrative data to track how business performance evolves over time. This paper draws on about two decades of firm-level records from Tunisia’s formal business registry (Répertoire National des Entreprises), linking firm locations to satellite-based precipitation measures at the delegation level, which is Tunisia’s second-level administrative unit. Using more than 1 million firm-year observations, the study finds that droughts—defined as negative precipitation shocks—reduce total revenues and revenues per worker by approximately 12 and 11 percent, respectively. Large formal firms, non-exporting firms, and domestic firms are disproportionately vulnerable. The results are robust across a range of sensitivity analyses.