Disaster Impact - Editorial Express

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Suman K Sharma, Ph.D.
Singapore Economic Review Conference
August 6-8, 2009
Singapore
Presentation Outline
I.
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V.
Present Study
Disaster Impacts and Socio-economic Aspects:
existing Data & Methodologies
Socio-economic Aspects of Disaster Impacts:
Empirical Findings
Concluding Remarks
Areas for Further Research
2
Present Study
Objective: to further our understanding of disasters
and their implications for a country’s devlopment
- primarily based on review of literature: what are the
existing knowledge on socio-economic aspects of
disaster impacts?
- focus on natural disaster alone although findings can
be largely generalized
- considers events and activities at the national level
3
Existing Databases
on Disaster Events and Impacts
Fundamental requirement in understanding disaste impacts
Various sources: NatCat database; Sigma; ADRC; national ….
EM Dat(CRED):(i) causes 10 or more fatalities (ii) 100 or
more affected (iii) emergency; or (iv) call for int assistanc
Data Issues: Complexity arises due to differerences in defn,
effects, methodologies, sources, data points collected,
and constraints in time and funding
Lack of std method raises issue of transparency/comparison
How to classify disaster types/sub-types & primary/sec effects
How to locate larger scale disaster that cross borders
Lack of int consensus re best practice for dis data collection!
4
Existing Methodologies to Estimate
Disaster Impacts
a. UN-ECLAC Model (now universally accepted)
Direct impacts: damage to physical assets, human K, infrast
Indirect impacts: related w/ changes in ‘flows’ of eco activity;
Clower ‘05: (i) loss of business activity due to reduced
activities at damaged firms; (ii) loss of income in
secondary & tertiary empt; (iii) business disruptions not
directly rel to damage
Secondary effects: combined effects leading to imbalances in
macroeco variables (govt revenues /exp, BOPs, growth)
Sectoral Impacts: social, economic, infrastructure
Cross-sectoral Imp: emp, environmental, gender, governance
5
Existing Methodologies to Estimate
Disaster Impacts
b. Economic / Econometric Models:
Multi-country framework; Country case studies; growth
models; specific disaster incidents
c. Catastrophe Models:
estimate direct losses to physical assets; primarily used by
insurance/reinsurance co to estimate portfolio losses
d. Other Models (detail in Clower 2005)
- IIASA-WB-Swiss Re Model integrates hazard loss
frequency data into macroeconomic projection model
-Inputoutput Model; CGE Model; Eco Accounting Model
6
Impact of Disaster on
Development?: empirical findings
a. Disaster Impact in SR: a positive contributor to devt
Early literature- no adverse effect possibly through intro and
adoption of new technology (Dacy and Kunreuther ‘69)
Disasters benefit eco thru destroying pre-existing (obsolete)
physical K and introducing new tech (technological
leapfrogging) – as countries respond by showing greater
incentive to replace those K thru improved ones -leading
to higher TFP & GDP (Cuaresma et al. 2004)
Most damages occur in existing K (stock), so replaced w/
improved K leading to +ve productivity shock to
economy
7
Impact of Disaster on
Development?: empirical findings
a. Disaster Impact in Short-Run: positive effect on devt
Albala-Bertrand 1993: disasters don’t normally cause adverse
consequences on macroeco indicators as they increase
GDP, K formation, agr & construction output, reserves
(based on before-after statistical analysis of 26 countries)
Similar findings based on specific incidents - Kobe
earthquake (Horwich ‘00), pandemic flu of 1918-1919
(Becker ‘05), Hurricane Katrina (Balls and Swann ‘05), US
case studies (Mileti ‘99)
Okuyama (‘03): modern Solow framework- introd of new
tech lead to slower recovery & new, higher, stable, equilm
8
Disaster Impact: empirical findings
b.Disaster Impact in LR: inconclusive effect on growth
Very Few studies examine impact on L-R growth
-Toy & Skidmore (02): only study to conclude disaster can
lead to higher growth in LR: provide substantial evidence
count dis freq (normalized by land size) & compute corr w/
avg growth, K (physical / human) accumulation & TFP
Attribute increased gr after climatic dis to increase in human
K & increase in tech; & decrease in gr after geological dis to
decrease in physical K & loss of human K from loss of life
-Rasmussen (04): Dis either hurt or don’t harm LR growth
-Cuaresma (04): pos rel bet dis & tech absorption of foreign K
9
Disaster Impacts: empirical findings
b. Disaster Imp in LR : inconclusive effect (cont’d)
-Popp (06): 4 macroeco vars have +ve effect on LR growth:
Natural resources, physical K acc, human K acc, technology
-net effect depends on relative strengths; Disaster usually
i) have SR negative effects on natural resources;
ii) negative effect on physical capital accumulation,
iii) affects Human Capital in several ways depending on
magnitude of loss of lives, damage to education system,…
iv) increase or at least don’t decrease level of technology
Ultimate impact depends on effectiveness of institutions,
preparedness measures, recovery patterns and quality
10
Disaster Impacts: empirical findings
c. Disaster Impact: adverse effect on development
Adverse effect on SR growth observed by several w/ less
ambiguities; immediate effect thru damage in K,
thus will help understand the output effect
Rasmussen (04): significant impact on macroeco vars
plus large effects on fiscal & external bal
Benson and Clay (04): major nat disasters can have
severe negative SR eco impacts & also can have
adverse LR consequences for eco growth, devt,
poverty reduction plus budgetary pressure
(Dominican Rep, Bangladesh and Malawi)
11
Disaster Impacts: empirical findings
c) Disaster Impact: adverse effect on devt (cont’d)
Noy (07): focus on natural disasters’ ex-post impact on
macro-economy
- uses a comprehensive multi-country macroeco panel
dataset for 1970-2003
- Disasters do have SR adverse impact
- Strong indication that amount of property damage
caused by disaster is a negative determinant of GDP
growth
12
Disaster Impacts: empirical findings
d. Disaster Impacts & influence of other factors
i) Eco Structure: relative importance of sectors / subsectors,
ownership pattern, intersect linkage, role of productiv K
Agri-based economy suffer more in damages; less diversified
econo suffer more (export based, tourism-based)
ii) Stage of Devt: measured in degree of sectoral, geographic
and financial integration, levels of eco specialization &
govt’s revenue raising capabilities (Benson & Clay 2004)
complex relationship; depends on infrastructure, economic
specialization, degree of integration/openness, fiscal/fin
system, governance
13
Disaster Impacts: empirical findings
ii) Stage of Devt (cont’d):
Developing countries: more vulnerable; greatest direct
losses/GDP
Rasmussen (04): dis costs in relative terms much higher (in
terms of no of people affected & value of damage
Developed countries: massive losses in physical assets (Kobe
earthquake, Hurricane Katrina); socio-eco impacts are less
due to improved mitigation, planning & recovery; greater
access to fin resource & K mkt; improved pvt sector/env
management; Wealth key! Dem for safety rises w/ income!
Higher devt is associated with fewer disaster related deaths
and less damages (in terms of GDP)(Albala-Bertrand 93;
Kahn 03; Toy & Skidmore ‘04)
14
Disaster Impacts: empirical findings
iii) Institutional and social aspects
Studies estimate rel bet socio-eco dev & disasters & observe that
losses (human & eco) are less in countries w/ higher level of
education, more open & competitive economies, more complete
financial system and smaller govt size
institutions & other forces interact with disaster impact &
influence the net effect on development
Countries w/ better education/institutions, greater openness for
trade, smaller govt size experience less damage & better able to
withstand disaster shocks & prevent subsequent adverse impact
on eco (Kahn ‘03; Popp ‘06; Noy ’07; Toy & Skidmore ‘07)
Comparative analysis of institutional quality indicates countries w/
better institutions experience lower damages (in terms of eco
costs and no people affected) (Raschky 08)
15
Concluding Remarks
 Disaster issue is a Development issue!
 Disasters’ impacts on a nation’s development not clear!
 A multiplicity of factors - underlying social, eco, inst
structure interact w/ disasters’ impact on development
 A multidisciplinary issue; joint effort of all stakeholders ;
collaboration across various disciplines; e.g., pvt
investment in risk management can promote
competitiveness & trade
 How can Economists/soc scientists help? – they can
contribute to quant modeling /estimating techs; provide
qualitative insights; help improve accuracy of impact
models; provide timely information to all
Requires extensive knowledge/information to understand full
nature of disaster impacts
16
Areas for Further Research:
Comprehensive Database
feasible only w/ substantial, more extensive/precise
disaster datasets to examine disaster impacts &
empirically investigate interrelationship w/ devt
- Assessment of existing databases, their relevance &
adequacy to undertake impact assessments
- Explore possibilities of creating/maintaining
comprehensive database w/ common
methodology w/ appropriate standardizaton
(popn, inflation, incomes, asset, other aspects)
Collaboration across all (DRM, GIS sp, hum org…)
17
Areas for Further Research: Standard
Methodology of estimation
One research area could involve (i) Assessment of existing
methodology of estimating dis impact & (ii) exploring
possibilities of creating Standard Methodology
Cross-country, cross-sectoral comparison requires common
methodology; including approaches – quant/qualitative
Assessment should begin w/ examining following questions:
 What kind(s) of disaster impact(s) is/are modelled?
 How are the disaster damages classified?
 How are intangible damages valued?
 How applicable to developing countries?
 Adequate to isolate disaster imp from other determinants?
18
Areas for Further Research:
Comprehensive Research on DI
 What are the channels thru which disasters affect a nation’s
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growth rate? Are those different depending on the shortrun vs long-run growth?
What are other influences that interact with disasters and
growth rates?
Do disasters consistently exhibit varying impacts on
development depending on its socio-economic and
political structure?
Do impacts depend on country’s stage of development? If
so, how consistent are those on developing country vis-àvis developed?
What are the impacts of ex-post policy changes following a
disaster?
19
Areas for Further Research: Empirical Study on
Disaster Financing in SEA
Examine recent disasters and role undertaken by govts &
other agencies in disaster financing
e.g., undertake case studies focused on SEA & and
examine the following questions:
 How are governments in these countries financing
their disaster related risks in recent years?
 How have the needs been met, Where have shortfalls
arisen and How have these governments addressed
these shortfalls?
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Areas for Further Research:
Role of Microinsurance and Microfinance
Evidences: Dis have differential impacts on poor, disadvantag
Microfinance instns largely handling issue of low access to fin
But disaster financing not handled in most cases;
Some of the possible questions to examine are:
 What are possible ways to make insurance & related
instruments available to poor w/ particular attention to the
role of microinsurance and microfinance institutions?
 What’re possible means for creating a ‘social approach to
disaster financing’ w/ greater inv in social infra-community
capacity building, strengthening of institutions within civil
societies, increased partnership w/ pvt sector, ….
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