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Economic impact of natural disasters: a myth or mismeasurement?

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  • Seong D. Yun
  • Ayoung Kim

Abstract

This study sheds light on possible spatial aggregation bias and mismeasurement in natural disaster impacts on economic growth when adopting the synthetic control method. Using the impacted US areas of Hurricane Katrina in 2005 as a case study, we compared trends of real GRDP per capita, population, and GRDP at New Orleans-Metairie metropolitan statistical area and Louisiana State, 1992–2017. This study empirically demonstrates that improper spatial units of analysis could distort the causal inference in the synthetic control method. Additionally, per capita growth as indicators of recovery from natural disasters is likely to misinterpret economic growth when affected regions experience a sharp decrease in population. These biased results arouse special attention to possible underestimation of natural disaster impacts, particularly when analysing economically lagging regions. Also, seemingly increasing per capita indicators do not always support evidence of creative destruction after natural disasters.

Suggested Citation

  • Seong D. Yun & Ayoung Kim, 2022. "Economic impact of natural disasters: a myth or mismeasurement?," Applied Economics Letters, Taylor & Francis Journals, vol. 29(10), pages 861-866, June.
    • Handle: RePEc:taf:apeclt:v:29:y:2022:i:10:p:861-866
    DOI: 10.1080/13504851.2021.1896667
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