Natural natural disasters and economic disruption

Pre-print, Working paper: The cost of natural calamities is not limited to direct capital losses. Economies in the wake of severe shocks experience important slowdowns. I construct an exhaustive dataset of objective measures on cyclones and earthquakes worldwide between 1980 and 2006 and complement existing reports on direct damages. I then estimate the amplitude of indirect economic losses in the aftermath of catastrophes. Declared damages accounting for 1% of GDP are associated with a slowdown of .05 to .06 points of GDP growth. The economic slack piles up to .4 points of GDP when I instrument by actual exposure to alleviate censorship issues and declaration biases. This output loss is superior to what would suggest a model of labor frictions and capital losses and points to large business disruptions. Finally, the objective measures happen to be better at predicting the economic slack than estimations from officials.

Author(s)

Yanos Zylberberg

Date of publication
  • 2010
Keywords JEL
O13 Q51 Q54
Keywords
  • Natural disasters
  • Economic disruption
  • Declaration biases
Internal reference
  • PSE Working Papers n°2010-36
Version
  • 2