The Economic Growth Impact of Hurricanes: Evidence from U.S. Coastal Counties

Abstract

We estimate for the first time the impact of hurricane strikes on local economic growth rates and how this is reflected in more aggregate growth patterns. To this end we assemble a panel data set of US coastal counties' growth rates and construct a novel hurricane destruction index that is based on a monetary loss equation, local wind speed estimates derived from a physical wind field model, and local exposure characteristics. Our econometric results suggest that in response to a hurricane strike a county's annual economic growth rate will initially fall by 0.8, but then partially recover by 0.2 percentage points. While the pattern is qualitatively similar at the state level, the net effect over the long term is negligible. Hurricane strikes do not appear to be economically important enough to be reflected in national economic growth rates.

Natural disasters and labor markets

“…Finally, Loayza, Olaberría, Rigolini, and Christiaensen (2009) find that the effect of natural disasters is heterogenous with regard to the type and severity of a natural disaster and the level of development of a country; further, they find evidence for significant differences in impacts by sector. Examining the effect of hurricanes in the US on local growth rates, Strobl (2010) finds that hurricanes significantly reduce county-level growth rates but the effect is fairly short-lived and disappears one year after the earthquake.…”

Impact of natural disaster on public sector corruption

“…Similarly, the misuse of reconstruction funds was revealed in the case of the Great East Japan Earthquake, when it was reported that "a special account budget to fund the reconstruction of communities devastated by the 3/11 earthquake, tsunami, and nuclear disasters has been used to pay for unrelated projects" (Japan Times 2012). For instance, some money earmarked for reconstruction work was spent improperly on projects to improve the earthquake resistance in buildings of the central government's 1 In particular, after entering the 21st century, a growing number of researchers are attempting to investigate the impact of natural disasters on economic growth (Skidmore & Toya 2002;Strobl 2011), death toll (e.g., Anbarci et al 2005;Kahn 2005;Toya & Skidmore 2007), and trust (Skidmore & Toya 2013). 2 Public sector corruption is also observed to increase the frequency of technological disasters (Yamamura 2013).…”

Toward a Sustainable and Resilient Future

“…In any case, whether or not disaster losses translate into other social and economic impacts depends on how each individual disaster is managed (Moreno and Cardona, 2011) which in turn is related to capacities and political priorities. At the local scale, Strobl (2011) investigates the impact of hurricane landfall on county-level economic growth in the United States. This analysis shows that a county that is struck by at least one hurricane in a year sees its economic growth reduced on average by 0.79%, and increased by only 0.22% the following year.…”