When disasters travel: Europe’s hidden exposure to remote climate-related risks. Integrating computable general equilibrium and natural disaster risk models

This paper contributes to the literature on cross-border impacts at the global level of compound, climate-related multi-hazards. Our study examines the economic damage to Europe from alternative realizations (along storylines) of cyclones in the United States, China, and Japan by coupling natural hazard risk models that estimate the immediate, direct physical costs of hazards with a global recursive dynamic computable general equilibrium model. This approach offers two innovations. First, we assess cross-border impacts of compound natural hazards at the global level and across sectors using a computable general equilibrium model. This goes beyond the conventional narrow focus on a single sector, region, or hazard. Second, we assess the financial sector's role as a transmission channel for cross-border impacts. The results demonstrate material impacts for Europe. While the financial sector can absorb shocks in the short run, the resulting investment decisions reorient international financial flows, creating negative, long-lasting effects worldwide.