Natural Disasters and Economic Dynamics: Evidence from the Kerala Floods

Robert Beyer, Abhinav Narayanan and Gogol Thakur

No 10084, Policy Research Working Paper Series from The World Bank

Abstract: Exceptionally high rainfall in the Indian state of Kerala caused major flooding in 2018. This paper estimates the short-run causal impact of the disaster on the economy, using a difference-in-difference approach. Monthly nighttime light intensity, a proxy for aggregate economic activity, suggests that activity declined for three months during the disaster but boomed subsequently. Automated teller machine transactions, a proxy for consumer demand, declined and credit disbursal increased, with households borrowing more for housing and less for consumption. In line with other results, both household income and expenditure declined during the floods. Despite a strong wage recovery after the floods, spending remained lower relative to the unaffected districts. The paper argues that increased labor demand due to reconstruction efforts increased wages after the floods and provides corroborating evidence: (i) rural labor markets tightened, (ii) poorer households benefited more, and (iii) wages increased most where government relief was strongest. The findings confirm the presence of interesting economic dynamics during and right after natural disasters that remain in the shadow when analyzed with annual data.

Date: 2022-06-13
New Economics Papers: this item is included in nep-big, nep-dev, nep-env and nep-ure
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Working Paper: Natural Disasters and Economic Dynamics: Evidence from the Kerala Floods (2022)
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