Natural Disasters and Economic Dynamics: Evidence from the Kerala Floods

Robert Beyer, Abhinav Narayanan () and Gogol Thakur
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Abhinav Narayanan: Asian Infrastructure Investment Bank

Working Papers from National Institute of Public Finance and Policy

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.

Keywords: natural disasters; aggregate activity; household behavior; spatial analysis (search for similar items in EconPapers)
JEL-codes: D12 O44 Q54 R22 (search for similar items in EconPapers)
Pages: 52
Date: 2022-04
New Economics Papers: this item is included in nep-big, nep-dev, nep-env and nep-ure
Note: Working Paper 383, 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: Natural Disasters and Economic Dynamics: Evidence from the Kerala Floods (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:npf:wpaper:22/383

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