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On the GDP Effects of Severe Physical Hazards

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Abstract

We assess the impacts from physical hazards (or severe weather events) on economic activity in a panel of 98 countries using local projection methods. Proxying the strength of an event by the monetary damages it caused, we find severe weather events to reduce the level of GDP. For most events in the EM-DAT data set the effects are small. The largest events in our sample (above the 90th percentile of damages) bring down the level of GDP by 0.5 percent for several years without recovery to trend. Smaller events (below the 90th percentile) see a less immediate decrease in initial years (0.1 percent) that progressively widens to become similar to the effect of larger disasters after 10 years. Climatological hazards (droughts and forest fires) appear to have the largest effects. These findings are robust across country groupings by development and alternative measures of the strength of the physical hazard.

Suggested Citation

  • Martin Bodenstein & Mikaël Scaramucci, 2024. "On the GDP Effects of Severe Physical Hazards," International Finance Discussion Papers 1386, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgif:1386
    DOI: 10.17016/IFDP.2024.1386
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    Keywords

    Climate-related risk; GDP growth; Natural hazards and disasters; Rare disasters; Vulnerability to climate impacts;
    All these keywords.

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • O50 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - General

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