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A disparate impact

Natural disasters can have only positive effects on growth in the medium and long term

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A disparate impact

All natural disasters generate tremendous human suffering. This should always be first focus of any analysis. Focus efforts on how to assistant, to contain and help to recover affected populations. It is for this reason that balance of a natural disaster is always negative.

however, from economic research it is interesting to analyze impact that y have on economic growth. And here is where, along with or colleagues, we have contributed to analyze if all natural disasters are alike in respect to ir economic impact in medium and long term. Because in short-term are always negative.

Our study has shown, first, that natural disasters affect economic growth in medium and long term, but not always negatively. The effects differ between types of disasters and economic sectors. There is No reason to suppose that disasters will affect equally to agriculture, industry and services. Storms can inflict considerable damage to crops, property and infrastructure, so that will tend to reduce temporarily agricultural growth. But at same time might boost industrial growth through reconstruction and upgrade of capital stock.

In second place, some disasters moderate can have consequences, positive in some sectors. For example, destruction of physical capital can induce a update accelerated of existing stock of capital more modern and productive, accelerating and temporarily growth.

But, according to our results, major disasters never have positive effects. While storms moderate can boost industrial growth, this effect becomes negative in case of severe. In or words: while storms and moderate-sized earthquakes can have a beneficial effect of reconstruction on industrial growth, severe events are so devastating that loss of capital is not offset by increase of capacity utilization, dissipating potential gains

From here it can be concluded that impact on growth of recent disasters such as hurricane Irma and Harvey is going to depend on severity in each affected area.

The third finding is that growth in developing countries is more sensitive to natural disasters than in developed ones, with more sectors affected. Why? On one hand, a developed country usually has a more developed financial system, which allows fund more quickly reconstruction. Second, natural disasters generate a disruption such that it becomes necessary to reallocate resources (human and physical capital) from one sector to anor. So countries that can do so more easily you will recover more quickly. And States with lower income are very ineffective in reallocating factors of production to more efficient use. This is, in short, one of initial causes of your child's development.

So, it can be concluded that negative impact of, for example, hurricane Irma on growth will be greater in affected areas that have less economic development. And this was despite fact that capital loss could have been greater precisely in those areas.

Eduardo Olaberria is senior economist at World Bank


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