Economics of Natural Disasters

The following sections are included:

• DEDICATION
• PREFACE
• ABOUT THE CONTRIBUTORS
• ABOUT THE EDITORS
• CONTENTS

Natural disasters like earthquakes, typhoons, wildfires, floods, volcanic eruptions, can have consequences far beyond physical and economic damages leading to disruptions on communities, societies and peoples’ lives and livelihood options. In current times, since we live in a highly globalized world where the lives, livelihoods and businesses of peoples, communities, and nations are deeply interconnected, natural disasters’ adverse consequences can be profound on multiple fronts — with cross cutting implications over regions, time and sectors. One of the implications of a global economy is that major catastrophic events can disrupt economies far beyond the local ones in terms of global infrastructure, since worldwide businesses can also be impacted due to their interconnected supply chains and markets following the aftermath. As an example, the 2011 Japan earthquake and tsunami and the 2011 Thailand floods demonstrated to the world that although the events seemed to cause relatively localized damage to individual countries, they had far wider indirect economic implications through market disruptions caused by supply chain reactions, among others…

The following sections are included:

• ECONOMIC RESEARCH ON DISASTER IMPACT
• A TYPOLOGY OF IMPACTS
• THE DIRECT IMPACTS OF DISASTERS ON THE POOR: SUDDEN-ONSET EVENTS
• DROUGHTS AND RAINFALL FLUCTUATIONS
• THE INDIRECT IMPACTS OF SUDDEN-ONSET EVENTS
• COPING RESPONSES OF THE POOR
• LONG-TERM SCENARIOS IN DISASTERS’ AFTERMATH
• REFERENCES

Natural disasters, by definition, cause great damage, destruction and human suffering. Estimating the associated economic losses is crucial, as this information supports decision-making in the immediate follow-up period of disaster events, but also for the development of long-term mitigation strategies. To better understand what is meant by economic losses from natural disasters and how to quantify them, we propose a classification and present associated economic quantification approaches. In a second, more practical oriented part, we use statistics from an international natural disaster database to analyze disaster events and the underlying losses occurring in Asian countries. Amongst other, we find that huge disaster losses and fatalities are associated with individual major events of particular types. After normalizing losses with GDP and fatalities with population count, the ranking of the most affected countries changed from more developed to less developed countries. We finish by giving some recommendations on how to improve the availability and quality of disaster-related loss estimates.

This chapter studies the common factors that determine people’s susceptibility to extreme natural events, and explores how geographic hazards and social conditions determine the chance of disaster exposure. On analyzing datasets from Bangladesh, Indonesia, and Tanzania, the chapter finds that, while a household’s chance of experiencing exposure depend on the type of hazard (viz., flood, drought, volcano and tsunami) and its level (viz., low to high), certain common social factors that determine the household’s everyday living conditions (viz., occupational mode, household size, and regional poverty), also, determine its susceptibility in exceptional times of disasters.

In January 1995, the Kobe earthquake occurred in the second largest economic region of Japan, and its economic damages were estimated around 10 trillion yen. This chapter investigates the economic effects from the event, based on the empirical data using the econometric technique and structural analysis method. The results indicate that the event had created statistically significant deviations from the pre-earthquake growth path of Kobe. In addition, the damages from the earthquake and subsequent reconstruction activities led to significant structural changes in the regional economy, which further affected Kobe’s long-run growth trend. These results are elucidated with the reconstruction plans implemented by the City of Kobe and the Hyogo Prefecture.

One of the most prominent casualties of a natural disaster is the property market. The private and social costs from such events typically run into millions of dollars. In this chapter, we use a dataset to examine the impact of natural disasters on residential house prices using a hedonic property (HP) values approach. Data before and after both a wildfire and floods, which affected Rockhampton in central coastal part of the state of Queensland, Australia are used. The data is unique because one of Rockhampton’s suburb was affected by wildfires and another by floods. For the analysis, three suburbs namely Frenchville, Park Avenue and Norman Gardens are used. Frenchville was significantly affected by wildfires in the latter part of 2009 and to a lesser extent in 2012, while Park Avenue was affected by floods at the end of 2010, January 2011, 2012 and 2013. Norman Gardens, which was relatively unaffected, is used as a control site. This enables us to examine the before and after effects on residential property values in the three suburbs. The results confirm that in the aftermath of a natural disaster property prices in affected areas decrease even though the large majority of individual houses remain unaffected. Furthermore, the results indicate that while prices in largely unaffected suburbs may gain immediately after a natural disaster, this gain may disappear if natural disasters continue to occur in the area/region due to a flood prone stigma being created. The results have several important policy decision and welfare implications which are briefly discussed in the chapter.

Reflecting complex linkages between the natural, built, socio-economic and other environments, disasters’ consequences can extend beyond the physical to economic, to social and psychological dimensions. Those dimensions complicate the task of impact estimation, and also, the undertaking of policies and actions — measures considered essential — to mitigate risks and threats to hazards and disasters. Furthermore, based on more recent events, the complexities surrounding a thorough understanding of disasters’ impacts and consequences are growing as well as evolving; which underscore the reality that any attempt to mitigate potential adverse consequences can be a challenge to policymakers and development actors. This chapter aims to broadly assess how do policymakers and development partners — based on existing knowledge — devise and implement policies and actions not only in response to imminent and actual crisis events but also to mitigate economic damages and losses of potential disaster risks and in the meantime, pursue the sustainable development agenda they are committed to. We attempt to look into two broad questions (i) How well the governments in the region have progressed in terms of mainstreaming a DRR agenda into their development policies, strategies and activities not only at the national but also local levels?; and (ii) in the course of pursuing the DRR agenda, What are the gaps and issues that need to be addressed so as to achieve the goal of reducing risks to hazards and disasters and building resilience? We maintain a broad understanding that DRR agenda should ideally blend in risk reduction concepts and appropriate measures in undertaking development planning, policies and activities at the national, sectoral and local levels, thus requiring dissemination and sensitization of risk related knowledge and information to all stakeholders involved. Given that a multitude of priorities and actions are involved in this endeavor, we narrow down the efforts made and focus only on a few selected aspects considered relevant primarily highlighting the issues and challenges involved.

As seen through various chapters in this volume, disasters can have severe consequences on peoples’ income, wealth, health, and social state. They can have equally damaging effects on various income groups in a society, and for the most part, the adverse impacts can persist for a much longer time. As discussed in Chapter 7, national governments in the region have employed various measures to translate their understanding of disasters into respective policy agendas and pursue a sustainable development path aimed at risk reduction. However, available evidences indicate that despite making significant progress in, for example, identifying satisfactory level of DRR focused development programs and policy agendas, most countries in the region still lack severely in terms of translating effectively the DRR agenda into practice due to various issues and challenges that require immediate attention. This concluding chapter briefly weighs in our outlook on the status of existing DRR development agenda in practice, particularly, in view of our understanding of disasters and the issues and challenges involved in operationlizing the agenda, and provides some thoughts and reflections on how best to mobilize our efforts and address the challenges through building on available supportive environments.

The following section is included:

• INDEX