The Economic Growth Impact of Hurricanes: Evidence from U.S. Coastal Counties

Eric Strobl
2011 Review of Economics and Statistics  
We estimate for the first time the impact of hurricane strikes on local economic growth rates and how this is reflected in more aggregate growth patterns. To this end we assemble a panel data set of US coastal counties' growth rates and construct a novel hurricane destruction index that is based on a monetary loss equation, local wind speed estimates derived from a physical wind field model, and local exposure characteristics. Our econometric results suggest that in response to a hurricane
more » ... to a hurricane strike a county's annual economic growth rate will initially fall by 0.8, but then partially recover by 0.2 percentage points. While the pattern is qualitatively similar at the state level, the net effect over the long term is negligible. Hurricane strikes do not appear to be economically important enough to be reflected in national economic growth rates. time the subsequent receipt of disaster assistance, clean-up and recovery activity, and the production of replacement capital will serve to act as a counterweight to any losses. 5 Additionally some of the losses may be insured and payments in this regard may be coming from outside the affected region. Uncertainty regarding the exact interplay and relative size of these factors means that the net economic effect of hurricane strikes is not at all obvious. Moreover, even if the losses largely outweigh the boosts to local economic growth from recovery activity, it is not clear to what extent this may be reflected in more aggregate growth patterns, since hurricanes, as most natural disasters, tend to be very localized phenomina relevant only for particular regions. 6 Surprisingly, however, as of date there is to the best of our knowledge no comprehensive study, for the US or elsewhere, of how hurricane strikes may have affected local growth patterns and how any local impact translates into more aggregate levels of economic growth. 7 More precisely, while there are a few papers that have examined the local impact of hurricanes, these have either focused on particular types of micro-level responses or dealt with the impact on the local labour market. For instance, Evans et al (2008) discover that fertility rates in the US Atlantic and Gulf of Mexico region change in response to 5 See Horwich (2000) for a discussion of this. 6 As a matter of fact, in a study of the Kobe earthquake in Japan, which was the most severe earthquake in modern times to strike an urban area, Horwich (2005) looking at GDP patterns over the period argues that there were no observable macroeconomic effects. 7 One may want to note, for instance, that even in the US there is no official systematic data collection on the impact of natural disasters and that while standard source data for GDP and income incorporate the effect they do not separately identify it. See
doi:10.1162/rest_a_00082 fatcat:3hvzwcef5vfcznhkuu7keougni