Long-Term Economic Effects of Storms

Analyzing the long-term economic effects faced by countries following hurricanes, typhoons, and other such storms requires research into how economic and social development is shaped by the environment. 

Amir Jina, Assistant Professor at the University of Chicago's Harris School of Public Policy, uses applied economic techniques, climate science, and remote sensing to understand the impacts of climate change and natural disasters in rich and poor countries alike. He notes that there are four outcomes economists consider when imagining the long-term economic effects of storms. 

As a first possibility, they predict that the storm's creative destruction will allow the country's economy to bounce back bigger and stronger than before. As a second, they imagine that the economy will become stronger in the long term due to the storm, while a third option predicts that the economy will eventually return to its previous trajectory of growth. As a final possibility, the country's economy after the storm never recovers or regains its pre-storm levels of growth.

"There's not much data for this sort of problem," Jina says, "so these economists were largely using abstract models to try to figure out and predict what might happen. By and large, a consensus emerged around the first reason: through creative destruction and the need to build back using more advanced technologies capable of increasing production, the long-run economic effects of a storm on a country should be positive. The empirical research that I've done demonstrates the opposite: economies don't recover after major storms. In the long run, they do significantly worse than had the storm not taken place."

Developing an Historical and Global Storm Model

In order to address the problem empirically, Jina and his research partner developed a system of measurements that could accurately tally the real damage done to a country's economy by a storm. Using climate science and historical storm data, they built a global model that brought together huge storms from over the past 60 years and their effects on the hit country's economies 5, 10, 15, and 20 years down the line.

"Around the time that a country gets hit until six months to a year afterwards," he notes, "nothing much happens economically. Big disasters tend to get lots of immediate aid and the subsequent period of reconstruction tends to increase GDP. But every country hit by a major storm over the past 60 years experienced a slow, almost imperceptible drag on its economy over the long term."

Long-Term Economic Effects in Wealthy Countries

The next question Jina posed in his research was whether the same downward long-term economic turn takes place in wealthy countries like the USA and Japan, where well-developed infrastructures and early-warning systems are generally thought to offer protection and quick recoveries from massive storms. His research, however, showed no difference in long-term recovery between rich and poor countries.

"Both experience roughly the same percentage decrease in GDP after 15 years," he says, "even if the mechanisms by which this happens in the two types of countries differ. For an economy like the USA's, it's a matter of lost jobs and the subsequent toll unemployment insurance and other social services takes on the economy, while, for a country like the Philippines, you see families having to make difficult decisions after a storm that have long-term effect on quality of life, such as choosing between investing in children and buying necessary medicines."

Some Encouraging Research

When it comes to specific policy measures in place to prepare for storms and their aftermath, Jina says that all the focus in that area has been on the first six months of recovery, while very little attention has been dedicated to determining what the best practices might be for mitigating a country's long-term economic recovery. He does note, however, some recent insights that point to an area that might benefit from more study.

"One suggestive and encouraging piece of research has to do with spending money on disasters before they happen," he said. "Some recent studies show that money spent on risk reduction is twice as effective as money spent after the storm has already hit."

This article is part of a lecture from Professor Jina in February of 2018. You can view the lecture in its entirety here.