Natural disasters and macroeconomic performance: The role of residential investment

Holger Strulik and Timo Trimborn

No 194 [rev.], University of Göttingen Working Papers in Economics from University of Goettingen, Department of Economics

Abstract: Recent empirical research has shown that income per capita in the aftermath of natural disasters is not necessarily lower than before the event. In many cases, income is not significantly affected and surprisingly, can even respond positively to natural disasters. Here, we propose a simple theory based on the neoclassical growth model that explains these observations. Specifically, we show that GDP is driven above its pre-shock level when natural disasters destroy predominantly residential housing (or other durable goods). Disasters destroying mainly productive capital, in contrast, are predicted to reduce GDP. Insignificant responses of GDP can be expected when disasters destroy about equally residential structures and productive capital. We also show that disasters, irrespective of whether their impact on GDP is positive, negative, or insignificant, entail considerable losses of aggregate welfare.

Keywords: natural disasters; economic recovery; residential housing; economic growth (search for similar items in EconPapers)
JEL-codes: E20 O40 Q54 R31 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-gro, nep-mac and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Natural Disasters and Macroeconomic Performance: The Role of Residential Investment (2015)
Working Paper: Natural disasters and macroeconomic performance: The role of residential investment (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cegedp:194r

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