The economics of cyclone disasters

It’s not quite the Solow model.  Here is a new paper from Solomon M. Hsiang and Amir S. Jin, “The Causal Effect of Environmental Catastrophe on Long-Run Economic Growth: Evidence From 6,700 Cyclones,” the abstract is this:

Does the environment have a causal effect on economic development? Using meteorological data, we reconstruct every country’s exposure to the universe of tropical cyclones during 1950-2008. We exploit random within-country year-to-year variation in cyclone strikes to identify the causal effect of environmental disasters on long-run growth. We compare each country’s growth rate to itself in the years immediately before and after exposure, accounting for the distribution of cyclones in preceding years. The data reject hypotheses that disasters stimulate growth or that short-run losses disappear following migrations or transfers of wealth. Instead, we find robust evidence that national incomes decline, relative to their pre-disaster trend, and do not recover within twenty years. Both rich and poor countries exhibit this response, with losses magnified in countries with less historical cyclone experience. Income losses arise from a small but persistent suppression of annual growth rates spread across the fifteen years following disaster, generating large and significant cumulative effects: a 90th percentile event reduces per capita incomes by 7.4% two decades later, effectively undoing 3.7 years of average development. The gradual nature of these losses render them inconspicuous to a casual observer, however simulations indicate that they have dramatic influence over the long-run development of countries that are endowed with regular or continuous exposure to disaster. Linking these results to projections of future cyclone activity, we estimate that under conservative discounting assumptions the present discounted cost of “business as usual” climate change is roughly $9.7 trillion larger than previously thought.

That link has an NBER gate, I do not yet see an ungated version.

Comments

Uh, climate change and severe weather? I'll let that one pass. I'm more interested in the implied baseline, which is no cyclonic activity?

Yeah, it was all going so well until they intruded the climate change drivel.

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Mood affiliation.

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Tornadoes always seem to target trailer parks and the poor residents therein. Mother Nature is the 1%. Obviously we need a Climate Change Protection Bureau.

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Does this take into consideration possible benefits of climate change such milder winters or greater agricultural production? Personally, I wouldn't be surprised if cost of transitioning to a zero carbon economy would cost more than 9.7 trillion.

the paper is simply saying that there is an extra $9.7T cost. It is not discussing the net cost.

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This is really interesting. In (tropical) emerging economies the political discourse is all about development. What about minimizing capital loss every year? Flood risk analysis is analyzed mostly in risk to life terms but the capital destroyed every year by storms is significant.

The weak point I found is that the economic data comes from national level GDP. Some countries are too big compared to the average storm size. Anyway, it is a great example for local planners that have the regional GDP estimates. The methodology is there to use it.

@Ray: there's a graph on Philippines on page 67, 7% of annual income lost every year.

The projections of climate change are weak, however the historical data is enough to worry about lost income.

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Let me see, if I follow the logic of the conclusion and factor in the growth of carbon dioxide in the atmosphere and then look at the pause in warming over the last fifteen years and the lower frequency of cyclones recently.... Then that must mean that the positive effects of climate change are understated by $10 trillion or so?

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Galveston, TX never really recovered from the hurricane of 1900 that killed 6,000. It was the main port of the Texas coast, but due to hurricanes, everything moved inland to Houston, which is 45 miles inland and 45 feet above sea level. Without hurricanes, the Gulf of Mexico coastline would be more populated.

Truth - hurricanes suck.

-Louisiana

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Folks upstream of this post, I think you (except Steve Sailer) missed the term "tropical". I think the author is referring to "typhoons", which in the west are known as hurricanes. Otherwise, the national effects of a local tornado, no matter how bad, are trivial I would imagine.

Perhaps this paper explains why the Philippines, which gets hit by more typhoons/hurricanes than anywhere else, is so backward? But we are used to typhoons here, so the effects, as the paper notes, are not as pronounced. But it's another nail in the coffin for growth.

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Ungated version available here: http://blogs.cuit.columbia.edu/asj2122/research/

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To realize the economics of cyclone disaster, any person should visit my country Bangladesh. We have seen some terrible disasters in the last 100 years. In 1970, more than half million people died along with cattle and many houses got destroyed. It has been a constant war for our people to just get up from one major devastating cyclone after every 4-5 years. Still, we have managed to have GDP growth of 6% constantly in the last one decade.

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It drove me nuts in my first econ course to be forced to memorize AD-AS stuff in steps which demonstrated that, following major disaster, the end effect was growth due to repairs. It may look like that, but when you are rebuilding houses instead of building new stuff, the effect must not be positive.

It's like arguing that the original cause more than erases itself.

Which BS arguments to string together in which orders? Oh well, I guess that's part of learning.

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