Joanne Stevenson, Ilan Noy, Garry McDonald, Erica Seville, and John Vargo
The economics of disasters is a relatively new and emerging branch of economics. Advances made in analysis, including modeling the spatial economic impacts of disasters, is increasing our ability to project disaster outcomes and explore how to reduce their negative impacts. This work is supported by a growing body of case studies on the organizational and economic impacts of disasters, such as Chang’s in-depth analysis of the Port of Kobe’s decline following the 1995 Great Hanshin earthquake, and the evolving studies of the workforce trends during the ongoing recovery of Christchurch, New Zealand, following a series of earthquakes in 2010 and 2011.
The typical view of post-disaster economies depicts a pattern of destruction, renewal, and improvement. Evidence shows, however, that this pattern does not occur in all cases. The degree of economic disruption and the time it takes for different economies to recover varies significantly depending on characteristics such as literacy rates, institutional competency, per capita income, and government spending.
If the impacts are large relative to the national economy, a disaster can negatively affect the country or sub-national region’s fiscal position. Similarly, disasters may have significant implications for the national trade balance. If, for example, productive capacity is reduced by disaster damage, exports decrease, the trade balance may weaken, and localized inflation may increase.
Studies of individual, household, industry, and business responses to disasters (i.e., microeconomic analyses) cover a broad range of topics relevant to the choices actors make and their interactions with markets. Both household consumption and labor markets face expansion and contraction in areas affected by disasters, with increased consumption and employment often happening in reconstruction related industries.
Additionally, the ability of businesses to absorb, respond, and recover in the face of disasters varies widely. Characteristics such as size, number of locations, and pre-disaster financial health are positively correlated with successful business recovery. Businesses can minimize productivity disruptions and recapture lost productivity by conserving scarce inputs, utilizing inventories, and rescheduling production.
Assessing the progress of economic recovery and predicting future outcomes are important and complex challenges. Researchers use various methodologies to evaluate the effects of natural disasters at different scales of the economy. Surveys, microeconomic models, econometric models, input-output models, and computable general equilibrium models each offer different insights into the effect of disasters on economies.
The study of disaster economics still faces issues with consistency, comprehensiveness, and comparability. Yet, as the science continues to advance there is a growing cross-disciplinary accumulation of knowledge with real implications for policy and the private sector.