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date: 30 April 2017

Long-Term Consequences of Natural Disasters

This is an advance summary of a forthcoming article in the Oxford Research Encyclopedia of Natural Hazard Science. Please check back later for the full article.

What are the long-term economic and demographic impacts of disasters? Do disasters caused by natural hazards lead to long-term declines in economic activity, or do they stimulate the local economy because of the added investment and the upgrading of infrastructure? What are the main facets of the economy that are impacted in the long term—population, incomes, employment, other parameters, or none at all? Are the long-term impacts of disasters caused by natural hazards different from those caused by man-made shocks, such as civil wars or terrorist attacks?

The type and severity of the natural hazard surely have an effect on the kinds of dynamics experienced after a disaster, but so do the levels of exposure of people and wealth (in the form of man-made infrastructure), and the social and economic vulnerabilities that characterize the affected area. Additionally, one needs to differentiate, when examining long-term impacts, between direct and indirect damage, and whether this distinction assists us in explaining different trajectories. The role of policy in shaping long-term outcomes is potentially very important. While it is difficult to claim significant agreement on any one topic, some intriguing insights have been emerging in recent research.

To discuss the long-term economic impact of natural disasters, one must first define impact. A common way to determine this impact is to compare the economy post-disaster to its state prior to the disaster. Some argue that an economy has recovered when it returns to pre-disaster levels. This approach can be misleading as the evidence suggests that, in some cases, economies that were severely impacted by disasters may experience a brief return to pre-disaster levels, occasioned by the boom in reconstruction spending, but then decline back to experience long-term decline associated with the disaster event itself or the fear it has created of future events.

It is clear from the above example that the appropriate comparison is to a counterfactual scenario without event. Of course, even more challenging is to identify, or predict, what would have happened had the disaster not occurred. Not surprisingly, the ways in which this counterfactual, disaster-free state is identified may determine the conclusions reached.

A minority of observers argue that it is common to see economies and communities reconstructed to a better state than they were pre-disaster (a “build-back-better” scenario), and others conclude that disasters occasioned by natural hazards are benign in the long term, at least at a large enough scale (potentially at the country level). On the other hand, very poor countries, very small countries, or regional economies within countries can all experience significant and very prolonged declines in economic activity in the aftermath of catastrophic natural hazard events. These adverse developments can be experienced as long-term declines in populations (e.g., New Orleans, post-2005), long-term declines in incomes and employment (e.g., Kobe, post-1995), very long-term declines in asset prices (the Dust-Bowl midwestern United States, post-1930s), or shifts in the sectors of economic activity (San Francisco, post-1906).