Chapter 2: Measuring Disasters’ Many Effects
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Table 2.3 Growth effect of a “typical” (median) disaster
Median intensity of:
Effect on: GDP growth
Agricultural growth
Industrial growth
Service growth
Droughts
–0.6%***
–1.1%***
–1.0%**
–0.1%
Floods
1.0%***
0.8%***
0.9%***
0.9%***
Earthquakes
–0.1%
0.1%
0.9%*
–0.1%
Storms
–0.1%
–0.6%***
0.8%*
–0.2%
Note: The effects on GDP growth rates—the rate of change of output—and not on output levels. So, a typical drought could reduce overall GDP growth by 0.6 percent; agriculture growth by 1.1 percent, and so on. *significant at 10%; **significant at 5%; ***significant at 1%. Source: Loayza and others 2009.
Five-year non-overlapping rates of growth do not capture short-run effects (hence the parallel study summarized in sequence). The main findings are that medium-run economic growth is generally lower after a disaster. But the effect depends on the type of hazards and is not always statistically significant or uniform. • Overall growth falls by 0.6 percent after a drought of typical (or median) intensity, with the most adverse effect on agricultural and industrial growth. • Overall growth barely falls after a typical earthquake, but industrial growth rises, perhaps because of reconstruction. • Agricultural growth falls by 0.6 percent after a typical storm, but industrial growth rises, again perhaps because of reconstruction. • Interestingly, overall growth rises by a statistically significant 1 percent after a flood of typical intensity. This is plausible because although floods disrupt farming and other activities, they may also deposit nutrient-rich silt and may increase hydroelectric power, which boosts industrial growth. For example, in Norway, an unexpected glacial lake outburst flow in 2001 allowed the Norwegian utility Sisovatnet to produce an additional year of hydropower.22 Capturing such gains depends partly on having the right infrastructure in the first place (here, a reservoir capable of holding excessive water). But severe disasters (limited to only 10 percent of all disasters) have adverse effects regardless of type. The adverse effect on agricultural growth doubles for severe droughts; the rise in growth after severe floods becomes statistically insignificant; and severe storms are more damaging, particularly for industrial growth. Table 2.4 shows the results. In the second parallel background paper, Fomby and others (2009) trace the annual growth in the year of and the year following the events to examine the adjustment path in the shorter run (1 to 3 years). The model pools the experiences of various countries over time to arrive at mean responses of growth to disasters of different intensities. While losing country specificity,