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Economic resilience: definition and measurement

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  • Hallegatte, Stephane

Abstract

The welfare impact of a disaster does not only depend on the physical characteristics of the event or its direct impacts in terms of lost lives and assets. Welfare impacts also depend on the ability of the economy to cope, recover, and reconstruct and therefore to minimize aggregate consumption losses. This ability can be referred to as the macroeconomic resilience to natural disasters. Macroeconomic resilience has two components: instantaneous resilience, which is the ability to limit the magnitude of immediate production losses for a given amount of asset losses, and dynamic resilience, which is the ability to reconstruct and recover. Welfare impacts also depend on micro-economic resilience, which depends on the distribution of losses; on households'vulnerability, such as their pre-disaster income and ability to smooth shocks over time with savings, borrowing, and insurance, and on the social protection system, or the mechanisms for sharing risks across the population. The (economic) welfare disaster risk in a country can be reduced by reducing the exposure or vulnerability of people and assets (reducing asset losses), increasing macroeconomic resilience (reducing aggregate consumption losses for a given level of asset losses), or increasing microeconomic resilience (reducing welfare losses for a given level of aggregate consumption losses). The paper proposes rules of thumb to estimate macroeconomic and microeconomic resilience based on the relevant parameters in the economy. It also provides a toolbox of policies to increase macro- or micro-economic resilience and a list of indicators that can be used to build a resilience indicator.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 6852.

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Date of creation: 01 May 2014
Date of revision:
Handle: RePEc:wbk:wbrwps:6852

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Related research

Keywords: Economic Theory&Research; Natural Disasters; Climate Change Economics; Insurance&Risk Mitigation; Labor Policies;

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References

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  1. Dercon, Stefan, 2004. "Growth and shocks: evidence from rural Ethiopia," Journal of Development Economics, Elsevier, vol. 74(2), pages 309-329, August.
  2. Battiston, Stefano & Delli Gatti, Domenico & Gallegati, Mauro & Greenwald, Bruce & Stiglitz, Joseph E., 2007. "Credit chains and bankruptcy propagation in production networks," Journal of Economic Dynamics and Control, Elsevier, vol. 31(6), pages 2061-2084, June.
  3. Kroll, Cynthia A. & Landis, John D. & Shen, Qing & Stryker, Sean, 1991. "Economic Impacts of the Loma Prieta Earthquake: A Focus on Small Businesses," University of California Transportation Center, Working Papers qt05f3382m, University of California Transportation Center.
  4. Hallegatte, Stéphane & Dumas, Patrice, 2009. "Can natural disasters have positive consequences? Investigating the role of embodied technical change," Ecological Economics, Elsevier, vol. 68(3), pages 777-786, January.
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  6. Avi J. Cohen, 2003. "Retrospectives: Whatever Happened to the Cambridge Capital Theory Controversies?," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 199-214, Winter.
  7. Hallegatte, Stéphane & Ghil, Michael, 2008. "Natural disasters impacting a macroeconomic model with endogenous dynamics," Ecological Economics, Elsevier, vol. 68(1-2), pages 582-592, December.
  8. Stine Aakre & Ilona Banaszak & Reinhard Mechler & Dirk Rübbelke & Anita Wreford & Harvir Kalirai, 2010. "Financial adaptation to disaster risk in the European Union," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 15(7), pages 721-736, October.
  9. Adam Rose & Dan Wei, 2013. "Estimating The Economic Consequences Of A Port Shutdown: The Special Role Of Resilience," Economic Systems Research, Taylor & Francis Journals, vol. 25(2), pages 212-232, June.
  10. Henriet, F. & Hallegatte, S. & Tabourier, L., 2011. "Firm-Network Characteristics and Economic Robustness to Natural Disasters," Working papers 355, Banque de France.
  11. Eduardo Rodriguez-Oreggia & Alejandro De La Fuente & Rodolfo De La Torre & Hector A. Moreno, 2013. "Natural Disasters, Human Development and Poverty at the Municipal Level in Mexico," Journal of Development Studies, Taylor & Francis Journals, vol. 49(3), pages 442-455, March.
  12. Stéphane Hallegatte & Fanny Henriet & Anand Patwardhan & K. Narayanan & Subimal Ghosh & Subhankar Karmakar & Unmesh Patnaik & Abhijat Abhayankar & Sanjib Pohit & Jan Corfee-Morlot & Celine Herweijer , 2010. "Flood Risks, Climate Change Impacts and Adaptation Benefits in Mumbai: An Initial Assessment of Socio-Economic Consequences of Present and Climate Change Induced Flood Risks and of Possible Adaptation," OECD Environment Working Papers 27, OECD Publishing.
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