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Natural disasters and macroeconomic performance

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  • Strulik, Holger
  • Trimborn, Timo

Abstract

Recent empirical research has shown that output and GDP per capita in the aftermath of natural disasters are not necessarily lower than before the event. In many cases, both are not significantly affected and, surprisingly, sometimes they are found to respond positively to natural disasters. Here, we propose a novel economic theory that explains these observations. Specifically, we show that GDP is driven above its pre-shock level when natural disasters destroy predominantly durable consumption goods (cars, furniture, etc.). Disasters destroying mainly productive capital, in contrast, are predicted to reduce GDP. Insignificant responses of GDP can be expected when disasters destroy both, durable goods and productive capital. We extend the model by a residential housing sector and show that disasters may also have an insignificant impact on GDP when they destroy residential houses and durable goods. We show that disasters, irrespective of whether their impact on GDP is positive, negative, or insignificant, entail considerable losses of aggregate welfare.

Suggested Citation

  • Strulik, Holger & Trimborn, Timo, 2016. "Natural disasters and macroeconomic performance," ECON WPS - Vienna University of Technology Working Papers in Economic Theory and Policy 07/2016, Vienna University of Technology, Institute for Mathematical Methods in Economics, Research Group Economics (ECON).
  • Handle: RePEc:zbw:tuweco:072016
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    Cited by:

    1. M. Fratzscher & C. Grosse Steffen & M. Rieth, 2017. "Inflation Targeting as a Shock Absorber," Working papers 655, Banque de France.
    2. Schünemann, Johannes & Trimborn, Timo, 2017. "Boosting taxes for boasting about houses: Status concerns in the housing market," ECON WPS - Vienna University of Technology Working Papers in Economic Theory and Policy 05/2017, Vienna University of Technology, Institute for Mathematical Methods in Economics, Research Group Economics (ECON).
    3. Sebastian Poledna & Stefan Hochrainer-Stigler & Michael Gregor Miess & Peter Klimek & Stefan Schmelzer & Johannes Sorger & Elena Shchekinova & Elena Rovenskaya & JoAnne Linnerooth-Bayer & Ulf Dieckman, 2018. "When does a disaster become a systemic event? Estimating indirect economic losses from natural disasters," Papers 1801.09740, arXiv.org.

    More about this item

    Keywords

    natural disasters; economic recovery; durable goods; residential housing; economic growth;

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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