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Natural Disasters, Public Spending, and Creative Destruction: A Case Study of the Philippines

Author

Listed:
  • Jha, Shikha

    (Asian Development Bank Institute)

  • Quising, Pilipinas

    (Asian Development Bank Institute)

  • Ardaniel, Zemma

    (Asian Development Bank Institute)

  • Martinez, Jr., Arturo

    (Asian Development Bank Institute)

  • Wang, Limin

    (Asian Development Bank Institute)

Abstract

Typhoons, floods, and other weather-related shocks can inflict suffering on local populations and create life-threatening conditions for the poor. Yet, natural disasters also present a development opportunity to upgrade capital stock, adopt new technologies, enhance the risk-resiliency of existing systems, and raise standards of living. This is akin to the “creative destruction” hypothesis coined by economist Joseph Schumpeter in 1943 to describe the process where innovation, learning, and growth promote advanced technologies as conventional technologies become outmoded. To test the hypothesis in the context of natural disasters, we look at the case of the Philippines—among the most vulnerable countries in the world to such disasters, especially typhoons. Using synthetic panel data regressions, we show that typhoon-affected households are more likely to fall into lower income levels, although disasters can also promote economic growth. Augmenting the household data with municipal fiscal data, we show some evidence of the creative destruction effect: Municipal governments in the Philippines helped mitigate the poverty impact by allocating more fiscal resources to build local resilience while also utilizing additional funds poured in by the national government for rehabilitation and reconstruction.

Suggested Citation

  • Jha, Shikha & Quising, Pilipinas & Ardaniel, Zemma & Martinez, Jr., Arturo & Wang, Limin, 2018. "Natural Disasters, Public Spending, and Creative Destruction: A Case Study of the Philippines," ADBI Working Papers 817, Asian Development Bank Institute.
  • Handle: RePEc:ris:adbiwp:0817
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    References listed on IDEAS

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    Cited by:

    1. Junko Mochizuki & Asjad Naqvi, 2019. "Reflecting Disaster Risk in Development Indicators," Sustainability, MDPI, Open Access Journal, vol. 11(4), pages 1-14, February.
    2. Rex Aurelius C. Robielos & Chiuhsiang Joe Lin & Delia B. Senoro & Froilan P. Ney, 2020. "Development of Vulnerability Assessment Framework for Disaster Risk Reduction at Three Levels of Geopolitical Units in the Philippines," Sustainability, MDPI, Open Access Journal, vol. 12(21), pages 1-27, October.

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    More about this item

    Keywords

    natural disasters; typhoons; poverty; household income mobility; foreign aid; fiscal transfers; municipalities; public spending; creative destruction;
    All these keywords.

    JEL classification:

    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H75 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Government: Health, Education, and Welfare
    • H76 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Other Expenditure Categories
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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