Droughts and firms in Tunisia

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. 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. 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.