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Natural disasters and macroeconomic performance: The role of residential investment

Holger Strulik () and Timo Trimborn ()

No 194 [rev.], Center for European, Governance and Economic Development Research Discussion Papers 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)
New Economics Papers: this item is included in nep-gro, nep-mac and nep-ure
Date: 2014
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Citations: View citations in EconPapers (2) Track citations by RSS feed

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Related works:
Working Paper: Natural Disasters and Macroeconomic Performance: The Role of Residential Investment (2015) Downloads
Working Paper: Natural disasters and macroeconomic performance: The role of residential investment (2014)
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