been shown to be important. Infrastructure disruptions have a more severe impact on small firms with lower coping capacities, which limits entrepreneurship and reduces competition (Alby, Dethier, & Straub, 2013; Mensah, 2018; Poczter, 2017). Furthermore, unreliable infrastructure reduces the production technologies and industries that a country can host and thus diminishes its international competitiveness (World Bank, 2019). Such dynamics are felt by the population through reduced employment and increased costs for consumers (Mensah, 2018; Rentschler & Kornejew, 2017).

Firms that are affected by infrastructure disruptions can take adaptation measures to minimize the impact on their operations. Without the acknowledgement of the costs of such measures, the full effect of unreliable infrastructure cannot be understood. To deal with power outages, many firms in developing countries invest in diesel-powered back-up generators which, of course, are much more expensive to operate than drawing energy from a public grid (Farquharson, Jaramillo, & Samaras, 2018; Steinbuks & Foster, 2010). Ownership of generators is also linked to lower long-term productivity due to higher marginal costs that limit investments into other input factors (Mensah, 2016). Furthermore, backup generation using diesel generators significantly increases emissions of air pollutants such as PM2.5 and greenhouse gases like CO2, thus causing indirect costs in the form of health impacts or climate change (Farquharson et al., 2018; World Bank, 2018).

Adaptation to unreliable water infrastructure can be similarly costly, with potential coping measures including investments into reusability and conservation of water as well as the construction of wells accessing underground, river, or lake water (Kajitani & Tatano, 2009; Rose & Krausmann, 2013). Turning to transportation, firms have been shown to increase their inventories to keep up production despite delayed inputs. This, however, leads to higher costs of storage, opportunity costs of bound capital, and possible depreciation of stored goods (Guasch & Kogan, 2003; Iimi, Humphrey, & Melibaeva, 2015). Unreliable infrastructure also influences firms’ location decisions, forcing them to compromise on other factors in order to avoid areas with low-quality infrastructure (Arauzo-Carod, Liviano-Solis, & ManjónAntolín, 2010; Kim & Cho, 2017).

2. Unreliable and fragile infrastructure is affecting economies around the world Disruption of infrastructure services affect firms in every economy around the world. However, disruption frequencies vary widely across as well as within economies. Whether or not a firm will have to cope with blackouts, water shortages, logistical obstacles or loss of tele communication ultimately depends on the interaction of country-level as well as firm-level exposure and resilience factors. Such factors include for example natural hazards, governance quality, production technology and back-up systems. This section records the prevalence of infrastructure disruptions and tries to identify country- and firm-specific exposure and resilience factors.

To better understand how firms are affected, it is useful to investigate whether certain firms are particularly likely to be affected by disruptions. Preliminary results suggest that infrastructure is a networked system, so that disruptions are experienced by – at least to some degree – all firms. Disruption prone firms seem to operate in all sectors, and possess costly back-up systems (e.g. generators). State or foreign owned firms tend to experience fewer disruptions. The location of firms can only explain certain disruption types (water and transport). Similar to vulnerability analyses for households, this section will explore what makes firms susceptible to experiencing disruptions and incurring high losses.

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