Natural natural disasters and economic disruption
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.
|Date of creation:||Oct 2010|
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