Abstract
Hurricane Katrina (2005) was the most devastating natural disaster in US history since San Francisco in 1906. A budding literature on disasters and trade suggests that while the impact of natural disasters on small and/or developing countries is significant, the effects on developed countries is not significant. This paper adds to the literature by focusing on a single event for a developed country, the US. In so doing, the aggregation problems of panel studies of many disasters over many countries is avoided. The results suggest that while terrible, Katrina’s effect on US imports was not statistically significant. Estimates of the long-run cointegrating relationship of import demand detected neither the presence of extraordinarily more nor less imports during the period studied (1983:1 to 2008:2). Small, short-run decreases, then increases, can be attributed to the direct effect of a small decline in overall economic activity alone. Recent estimates for income and price elasticities are also obtained and the results compared to other recent shocks, namely, the mild recession of 1990–1991 and the recession and trade collapse in 2008.
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Notes
The massive flooding in 2011 in Thailand caused net exports to drop 38 % according to a Japanese METI study. Affected firms (Japanese and otherwise) relocated some of their production outside of Thailand. It remains to be seen what long-term effect this will have on Thailand’s growth and trade. See a METI et al. (2012) white paper on this and other disasters. Imports, on the other hand, did not fall much and even rose somewhat as Thailand started to recover and rebuild.
Unfortunately, the authors’ study, published in 2010, only utilizes data until 2004, a year before Katrina, the largest post-war natural disaster in the US and an order of magnitude larger than any other disaster the US experienced. It would be interesting to see how results changed if Katrina, and some other major disasters which lie just outside the time span were included (for example, Holland’s massive flooding in 1953).
Data source: United Nations Statistics, accessed online at unstats.un.org October 23, 2013. Much has been written on the flood. One good summary can be found in Risk Management Solutions (2003) and is available online.
Most of this new deficit is due to massive energy imports as all 50 nuclear reactors are shutdown. But not all of this newfound deficit is from energy imports. See Parsons (2014) for more details.
See Dolfman et al. (2007) for an excellent summary of economic effects, especially on New Orleans, by far the hardest it and with most loss of life and economic damage of all Gulf cities.
See Diewert (1986) for a theoretical basis for an export supply function. While theoretically appealing, the data requirements, for one, are quite onerous.
Unit root tests were conducted over the period 1983:1 until 2005:2, just before Katrina.
A 1-year long dummy was also constructed for the shock of September 11, 2001 as well but a single cointegrating vector was still found and the 9–11 dummy was not significant, even at a 10 % level, in the DOLS estimation.
Katrina struck in the end of August and most disruption was in early September, the end of the third quarter. For robustness, estimates were done starting the Katrina dummy a quarter later, and also a quarter shorter (three quarters rather than a full year). All parameters estimates were the same level of significance, point estimates very similar, and the Katrina dummy still insignificant, at even a 10 % level.
But apparently not without additional cost. Gulfport, Mississippi, the 17th busiest port in the US is home to a significant amount of aluminum, tropical fruits and lumber imports from Latin America. These were re-routed to other ports in Texas or Florida. See Grenzeback and Lukmann (2006). But even Gulfport, by some measures the worst hit port, was open again for business at the end of September. Other ports, such as Mobile were importing again in a week or so.
See the US Congressional Budget Office website, www.cbo.gov, for these and many more estimates as to the effects of these two hurricanes.
October hurricanes are not uncommon. In October of 2013 Tropical Storm Karen headed straight for New Orleans and several parishes were evacuated. It weakened and veered east, so no damage was done. Hurricane Sandy, the second most destructive hurricane in US history, hit the East Coast in late October 2012.
I am grateful for an anonymous referee’s suggestion to do such an investigation.
A policy response may, however, be warranted to calm financial markets, as was done after the attacks of September 11, 2001. Aid (food, water, housing, financial, etc.) to those directly impacted by the disaster, of course, requires an immediate policy response. For one of many articles on the Fed’s response to 9–11, see, for example, Egan (2013).
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Acknowledgments
I would like to thank the Social Science Research Council (SSRC)/US-Japan Abe Fellowship (’12) for generous funding for travel to the US as well as in Japan and the resources to complete this work. This work was started while I was a Visiting Professor at University of Hawaii Mano’a and so I am very grateful for the support of the Chair, Professor Byron S. Gangnes, and the warm welcome and helpful insights I received from the broad and talented faculty there. Comments from participants at the Abe Fellows’ retreat in Tarrytown, NY in January of 2014 were also very constructive.
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Appendix: Data
Appendix: Data
All data and output is available upon request of the author.
All three series are from the International Monetary Fund’s International Financial Statistics, accessed online.
Imports are “Value of Imports”, in US dollars. The series remains in current/nominal terms. The series is seasonally adjusted using the X-13 filter. The natural logarithm is used in the final estimation.
GDP is Gross Domestic Product in nominal US dollars. This series has already been seasonally adjusted in the IFS data. The natural logarithm of the series is used.
The relative price measure is the natural logarithm of the ratio of the Import Price Index (2005 = 100) and the Wholesale Price Index. These series were not seasonally adjusted.
All other data sources are mentioned within the text.
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Parsons, C.R. Disasters and trade: did Hurricane Katrina affect US imports?. Int Econ Econ Policy 13, 177–194 (2016). https://doi.org/10.1007/s10368-014-0296-5
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DOI: https://doi.org/10.1007/s10368-014-0296-5