Macroeconomic Impacts of Natural Disasters
In addition to the immediate cost of natural disasters in terms of mortality, number of displaced people and infrastructural damage, and partly due to these immediate costs, natural disasters may have a lasting effect on economic output and growth. Combined, floods and storms represented 44 percent of the deaths, 67 percent of the number of people affected and the bulk of economic damages caused by natural disasters. If climate change results in an increase in the frequency and intensity of extreme weather events, including storms and floods, knowing whether or not floods have net permanent effects on economic output and the details of the adjustment path may prove useful to direct adaptation efforts. A UGA agricultural and applied economist compiled an unbalanced panel with annual data on the number and physical intensity of floods, and macroeconomic variables to trace the output growth response in the year of and the years after a flood shock for 118 countries from 1985 to 2008. The results show that flood shocks tend to have positive impacts on GDP growth rates. These positive impacts are not experienced on the year of the flood. The delay in the overall growth response seems to be driven by the agricultural sector and could be due to potentially beneficial effects of floods on land productivity that manifest on the following harvest cycle. The increase on agricultural growth in the year after the flood is larger and more persistent in developing countries, which typically rely on more traditional, less intensive forms of agriculture. Developed countries do not experience a positive impact of floods on overall growth, the positive impact on agricultural growth in developed countries does not spill over to the manufacturing and service sectors. These results contradict the conventional wisdom that disasters are more likely to have negative growth effects in developing countries.