Natural Disasters and Macroeconomic Performance

TY - JOUR

T1 - Natural Disasters and Macroeconomic Performance

AU - Strulik, Holger

AU - Trimborn, Timo

PY - 2019/4

Y1 - 2019/4

N2 - Recent empirical research has shown that output and GDP per capita in the aftermath of natural disasters are not necessarily lower than before the event. In many cases, both are not significantly affected and, surprisingly, sometimes they are found to respond positively to natural disasters. Here, we propose a novel economic theory that explains these observations. Specifically, we show that GDP is driven above its pre-shock level when natural disasters destroy predominantly durable consumption goods (cars, furniture, etc.). Disasters destroying mainly productive capital, in contrast, are predicted to reduce GDP. Insignificant responses of GDP can be expected when disasters destroy both, durable goods and productive capital. We extend the model by a residential housing sector and show that disasters may also have an insignificant impact on GDP when they destroy residential houses and durable goods. We show that disasters, irrespective of whether their impact on GDP is positive, negative, or insignificant, entail considerable losses of aggregate welfare.

AB - Recent empirical research has shown that output and GDP per capita in the aftermath of natural disasters are not necessarily lower than before the event. In many cases, both are not significantly affected and, surprisingly, sometimes they are found to respond positively to natural disasters. Here, we propose a novel economic theory that explains these observations. Specifically, we show that GDP is driven above its pre-shock level when natural disasters destroy predominantly durable consumption goods (cars, furniture, etc.). Disasters destroying mainly productive capital, in contrast, are predicted to reduce GDP. Insignificant responses of GDP can be expected when disasters destroy both, durable goods and productive capital. We extend the model by a residential housing sector and show that disasters may also have an insignificant impact on GDP when they destroy residential houses and durable goods. We show that disasters, irrespective of whether their impact on GDP is positive, negative, or insignificant, entail considerable losses of aggregate welfare.

KW - Durable goods

KW - Economic growth

KW - Economic recovery

KW - Natural disasters

KW - Residential housing

UR - http://www.scopus.com/inward/record.url?scp=85042904373&partnerID=8YFLogxK

U2 - 10.1007/s10640-018-0239-7

DO - 10.1007/s10640-018-0239-7

M3 - Journal article

AN - SCOPUS:85042904373

SN - 0924-6460

VL - 72

SP - 1069

EP - 1098

JO - Environmental and Resource Economics

JF - Environmental and Resource Economics

IS - 4

ER -