New tools for the estimation of direct and indirect impacts to Italian economic activities

Flood-related damage has increased dramatically in recent decades with direct and indirect economic impacts accounting for a large share of gross national products. Therefore, there is an urgent need to acquire more quantitative knowledge about flood damage to mitigate economic losses and reduce exposure to flood risk.

Firms are especially affected in case of flood. Still, flood direct damage assessment to businesses is hindered by the paucity of available data to characterize the enterprises, the lack of high-quality damage data to derive new models or validate existing ones, and the high variability of activity types which hampers generalization. On the indirect damage side, the existing literature predominantly focus on estimating damage at the macro scale, leaving a gap in understanding the specific impact on individual firms.

This study contributes at improving knowledge about types and extent of damage of flood events on economic activities through the analysis of empirical data, focusing on direct and indirect damage at the micro-scale, with specific reference to the Italian context. The investigated data derive from observed direct damage records collected after six flood events in Italy. The information on the surface of the building, the typology of the affected firms (i.e., NACE category) as well as on local water depth levels and the classification in damage components (building, equipment, and stock) permitted to develop an econometric model to forecast the direct damage and to analyze the mechanisms of flood damage across the economic sectors. The original dataset was then enriched with information included in the financial statement of flooded activities that has been used to investigate indirect damage.

Despite characterized by significant uncertainty, obtained results supply first tools for the prediction of flood direct damage and for the quantification of indirect damages to firms for the Italian context, in the support of more effective risk mitigation actions. In fact, the model identifies the more vulnerable elements within the business sectors orienting modelers and decision-makers choices.