Throughout macroeconomic history, there has been an age-old debate on the impact of natural disasters on communities. The age-old debate is based on this question, do natural disasters stimulate economic growth? Essentially, economists debate whether the positive economic effects of a natural disaster outweigh the negative effects in the long-run. You can say that there are both positive economic effects, as well as negative impacts that can change many things. Immediately following a disaster, there is a loss in the affected area. After hurricanes, floods, or tornadoes, the people, land, buildings, and other resources can no longer supply the same level of output.
The impact of Hurricane Katrina on New Orleans lies somewhere in between. Louisiana has much greater resources than Haiti and was able to draw on assistance from the federal government. To some degree, New Orleans has been able to bounce back from the disaster, with tourists returning. However, the population, which is currently 30 percent below its 2000 level, may never fully recover. Can Natural Disasters Help Stimulate the Economy? By Martin Neil Baily The earthquake that struck Sichuan Province in May of 2008, left behind scenes of almost apocalyptic devastation in China: mountaintops sheared off into valleys, cities reduced to rubble and dust, cracked dams, collapsed bridges and at least 80,000 dead. The earthquake also did something else; helped the Chinese economy. A little over a month after the quake, the State Information Center, a Chinese government research body, announced that the massive rebuilding effort, and the billions of dollars it would pump into the Chinese economy, would far outweigh the economic losses from the quake. The benefits, the center said, would be enough to bump up national economic growth by 0.3 percent, a small but not insignificant part of a growth rate for 2008 that most estimates put at just under 10 percent. Do natural disasters stimulate economic growth? By Drake Bennett July 8, 2018 Rebuilding efforts provide a short-term boost by attracting resources to the region, economists say.
When destroying old factories and roads, airports and bridges, disasters allow new and more efficient infrastructure to be built, forcing the transition to a more productive economy in the long term. ‘When something is destroyed you don’t necessarily rebuild the same thing that you had,’ said Mark Skidmore, an economics professor at Michigan State University. ‘You might use updated technology, you might do things more efficiently.’ Studies have found that earthquakes in California and Alaska helped spur economic activity there, and that countries with more hurricanes and storms tend to see higher rates of growth. Some of the most recent studies have found a link between disasters and innovation. However, climatologists warn that climate change could increase the number of extreme weather events in many parts of the world. Do natural disasters stimulate economic growth? By Drake Bennett July 8, 2018 Disasters perform the economic service of clearing out outdated infrastructure to make way for more efficient replacements. It might be seen as Mother Nature’s contribution to what the Austrian-born U.S. economist Joseph Schumpeter famously called capitalism’s ‘creative destruction.’ As it recovers, the economy actually becomes more productive than it was before, and some economists say that the effect can be seen decades after the disaster. In the short term, disasters have a negative impact on output, income, and employment.
Measured by GDP, recovery spending may lead to a higher output and employment after a period of time. Even if this is known to be a positive effect, it is something of an illusion because GDP typically does not account for all the economic losses from a disaster, mostly loss of capital. There is no way that a disaster can be viewed as good news economically, even if GDP is boosted for a few quarters as a result of recovery. For very poor countries or people, the disaster may scar their economic futures for a long time to come.