EUROPEAN CENTRAL BANKEUROSYSTEMWorking Paper SeriesStephan Fahr,Richard Senner,Andrea VismaraThe globalization of climate change:amplification of climate-relatedphysical risks through input-outputlinkagesNo2942Disclaimer:This paper should not be reported as representing the views of the European Central Bank(ECB).The views expressed are those of the authors and do not necessarily reflect those of the ECB.AbstractWhile global supply chains have recently gained attention in the context of the Covid-related crisis aswell as the war in Ukraine,their role in transmitting and amplifying climate-related physical risks acrosscountries has received surprisingly little attention.To address this shortcoming,this paper for the firsttime combines country-level GDP losses due to climate-related physical risks with a global Input-Outputmodel.More specifically,climate-related GDP-at-risk data are used to quantify the potential directimpact of physical risks on GDP at the country or regional level.This direct impact on GDP is then usedto shock a global Input-Output(IO)model so that the propagation of the initial shock to country-sectorsaround the world becomes observable.The findings suggest that direct GDP loss estimates can severelyunderestimate the ultimate impact of physical risk because trade can lead to losses that are up to 30 timeshigher in the EA than what looking at the direct impacts would suggest.However,trade can also mitigatelosses if substitutability across country-sectors is possible.Future research should (i)develop moregranular,holistic,and forward-looking global physical risk data and (ii)examine more closely the roleof both partially substitutable outputs,and critical outputs that are less substitutable or not substitutableat all,such as in the food sector.JEL Classification:E01,Q54,Q56,F18Keywords:Supply chains,physical risk,climate changeECB Working Paper Series No 2942