Macroeconomic Cost Estimation of Natural Disaster
Bryn Mawr College. Department of Economics
Place of Publication
Table of Contents
As natural disasters have been occurring more frequently than ever before, determining its economic impact is crucial for different parties for asset and live loss compensation, reconstruction, and international aid. However, literature disagrees largely on its direction, magnitude, and duration. One critical reason of this disagreement is the method of estimating the counterfactual growth of the affected economy. This study uses a synthetic cohort of countries to predict the counterfactual growth for five case studies of extremely large disasters. We find that all five cases experienced no immediate short-run loss. For the medium-and long-run, one case (2003 Luxembourg extreme heatwave) has experienced permanent loss of growth; one case (2005 Pakistan earthquake) experiences medium-run economic boom but not in the long-run; and two other cases (2004 Indonesia earthquake and tsunami and 2003 Spain heatwave) have permanent economic gain; one case (2003 Sri Lanka earthquake) experience no significant effect. The results suggest that the initial phase of economic development and the type of a disaster have no unifying effect on the impact of the disasters. Instead, pre-disaster idle production capacity and the composition of aids might have effects on the impact.