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Short-, Medium-, and Long-Term Growth Impacts of Catastrophic and Non-catastrophic Natural Disasters

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Abstract

Using disaster data from 1960, this paper examines the effects of natural disasters on economic growth. The analysis considers disaster effects by combining the following four dimensions: 1) short-, medium-, and long-term impacts, 2) disaster severity, categorized as catastrophic (CAT) or non-catastrophic (NCAT), 3) disaster type: hydro-meteorological, geophysical, and other specific disaster types, and 4) four income groups. The results show that the impacts of a disaster event on economic growth vary depending on the time frame, severity, disaster type, and income level. Overall, CAT disasters have negative impacts regardless of the time frame, while NCAT disasters may have positive impacts depending on the disaster type. The results also indicate that economic growth in lower-middle-income countries is most sensitive to natural disasters, but developed countries also experience negative impacts from CAT disasters.

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Notes

  1. There is a case of increased investment, beyond the initial balanced growth path before the disaster occurred, in the intermediate term after a disaster. However, in the long run, the GDP per capita may return to its initial balanced growth path for the following reasons: the depreciation of capital is larger than the replacement investments (Albala-Bertrand 1993) and the temporary inflow of foreign aid/assistance stops at a certain point in time (Klomp and Valckx 2014).

  2. See Cavallo and Noy 2011; Klomp and Valckx 2014; Kousky 2014; Lazzaroni and van Bergeijk 2014 for a comprehensive literature review.

  3. See Appendix Table 6 for specific income group thresholds in the analytical period from 1990 to 2010.

  4. Some studies use NatCatSERVICE, which is a private database provided by the insurance firm Munich Re, and adopt an alternative decision rule known as “an adaptation of Munich Re’s great natural catastrophe category” (e.g., Felbermayr and Gröschl 2014; Gassebner et al. 2010; Klomp 2016). These studies define a catastrophic disaster if a disaster event satisfies any of the following criteria: (i) number of killed is no fewer than 1000, (ii) number of injured is no fewer than 1000, (iii) number of affected is no fewer than 100,000, and (iv) the amount of the damages is larger than $1 billion.

  5. Recent papers used original data on hazard strength and hazard intensity (See Hsiang and Jina 2014; Felbermayr and Gröschl 2014; Newmayer et al., 2014).

  6. Fomby et al. (2013), Loayza et al. (2012), and Klomp (2016) constructed a disaster variable, which divides the sum of fatalities and 30% of the total number of people affected by the total population; the number of affected is counted by the definition of the IMF (2003).

  7. We consider the lagged year as more than 10 years and as the long-term effect, which is longer than lagged years used in previous studies (Cavallo et al. 2013; Cunado and Ferreira 2014; Klomp et al., 2016; McDermott et al. 2014).

  8. If interested in the results of other thresholds (95th, 90th, 75th) and the IMF (2003) decision rule, they are available upon request.

  9. With different definitions of a short-term period, particularly the shorter term (e.g. [t, t-1], [t, t-3]), the negative coefficients of disaster variables are smaller. Moreover, the negative coefficients of the medium-term period are larger.

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Acknowledgements

This research was funded by a grant from the Sompo Japan Environment Foundation, the Grant-in-Aid for JSPS Research Fellow (263600), and a Grant-in-Aid for Specially Promoted Research (26000001) by the Japan Society for the Promotion of Science. Any opinions, findings, and conclusions expressed in this paper are those of the authors and do not necessarily reflect the views of the grant supporters.

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Authors and Affiliations

  1. Research Institute of Economy, Trade and Industry, Tokyo, Japan

    Hiroki Onuma

  2. Urban Institute & Department of Civil Engineering, Kyushu University, Fukuoka, Japan

    Kong Joo Shin & Shunsuke Managi

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  1. Hiroki Onuma
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  2. Kong Joo Shin
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Correspondence to Hiroki Onuma.

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Appendices

Appendix 1

Table 6 Income Group Thresholds
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Appendix 2

Table 7 List of Countries in the Samples
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Onuma, H., Shin, K.J. & Managi, S. Short-, Medium-, and Long-Term Growth Impacts of Catastrophic and Non-catastrophic Natural Disasters. EconDisCliCha 5, 53–70 (2021). https://doi.org/10.1007/s41885-020-00074-z

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