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Impact and Recovery from Natural and Human Made Disasters: Literature Review

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Impact and Recovery from Natural and Human
Made Disasters: Literature Review
Tiago Freire
September 25, 2005
1 Introduction
The economic impacts of natural disasters have received relatively little
attention in the economic literature. Part of the reasons were pointed out
by Tol and Leek [38]:
1. Disasters strike in different places (with different characteristics) and
are unique in the way they impact a different place;
2. Damages of disasters are hard to measure, because disasters often
affect poor areas and because people have other things in mind after
a disaster;
3. The largest economic impact is on stock variables (capital and labor)
while economic indicators measure flows.
Furthermore, the issues pertaining to the economic impact of natural disas-
ters are similar to those of business cycles and risk aversion and insurance.
In a literature review, Skoufias [36] addresses questions (and answers) re-
lated not only the economic impact of natural disasters, but also of economic
crises. Here we will look at:
1. Does the economy return to the previous growth path, or does it move
to a new growth path? What are long term consequences?
2. What are the coping strategies of households? What problems arise
after the natural disaster? What are the medium term issues that
should be addressed?
3. What are the psychological impacts of a natural disaster, for how long
do they persist, and how are different people affected?
1
In the following sections we will try answer some of these questions. In
section 2 we look at the long term impact of disasters, in section 3 we analyze
issues that may arise following a disasters, in section 4 we will address the
psychological impact of disasters and section 5 is the conclusion.
2 Long-term impact
Dacy and Kunreuher [9] were the first to bring economic methods to the
analysis of natural disasters. They also were the first to put forward the
hypothesis that economies may benefit from a natural disaster through the
introduction of new technology. Okuyama [27] puts their argument in a
modern framework by using a Solow model to show that the introduction of
new technology would lead to a slightly slower recovery and a new, higher,
stable equilibrium. Miguel and Roland [25] arrive at a similar conclusion in
a Ramsey framework, and test it by looking at the US bombing of Vietnam.
Their results show that, after 30 years, there were no significant changes
in the differences in poverty rates between regions, excluding urban areas
and north Vietnam, suggesting that there is no new equilibrium. According
to the authors this is because most of the bombing where in rural areas
(affecting mainly agriculture) which recovered naturally with time; North
Vietnam also used some strategies to avoid damage to the physical capital
that did exist, there was massive post-war reconstruction effort; the popu-
lation displacement was only temporary; and the literacy campaigns during
the 60’s and 70’s also helped in the reduction of poverty. More interest-
ingly, they found that the regions more heavily bombed by the US had, 30
year later, more access to electricity, a sign o technological ”leapfrogging”,
perhaps as a result of the infrastructure investment during the 70’s, 80’s
and 90’s directed at more affected regions. When Davis and Weinstein [10]
looked at the impact of the US bombing of Japan in World War II on the
regional distribution of population they find that is has not change signif-
icantly, with most cities recovering after only 15 years. Even the hardest
hit cities, such as Hiroshima (20% of population immediately died) and Na-
gasaki (8% of population immediately died) recovered to their pre-war trend
in 30 and 20 years respectively. Skidmore and Toya [35] on the other used a
panel of 89 countries from 1960-90, and find evidence that climatic disaster
have a statistically significant impact on per capita GDP growth, though
the evidence is less strong on a negative impact of geological disasters. Fur-
thermore they find that this results comes about, not from physical capital
or human capital accumulation (though this last is positively impacted by
2
climatic disasters), but rather from total factor productivity (also positively
impacted by climatic disasters). Similarly Brakman et al. [4] and Organski
and Kruegler [28], [29] found that the economic effects of two World Wars
disappeared in 15-20 years.
Okuyama [27] also argue that a disaster could induce an increase in sav-
ings, as people try to restore what they had before. on the other hand,
Skidmore [34] shows, using a overlapping generation model, how the pos-
sibility of natural disasters increases savings, so that areas more prone to
natural disaster should have a higher saving rate to begin with. Savings
should be even larger if households cannot find insurance (which is usually
the case) and try to fully insure themselves. In fact, using a panel of 15
OECD countries from 1965 to 1995, the author finds that lager losses from
natural disasters increase the saving rate by 0.5% to 2.8%.
Localized disasters requires a different analysis. In a model of a mature
urban economies, where households bid for higher land prices and/or local
lower wages to locate in a place with certain amenities, while firms bid for
more attractive sites in both land and labor markets and together they de-
termine land prices and wages for a given level of amenities provided by a
location. When a disaster hits a city, the destruction of the city’s amenities
may lead to the migration of people and businesses out of the city. For this
reason Bram, Haughwout and Orr [5] in their study of the economic im-
pact of the September 11th terrorist attacks on New York, try to determine
what was behind the city’s growth in terms of earnings and employment for
1995-2000, by splitting it into: industry mix (what the growth would be if
local growth matched national growth in each industry); and local factors
(performance of local industries compared with national counterparts - city
growth not explained by industry mix). They find that growth in New York
has been driven by industry mix (with a high concentration of securities
industry of high growth and apparel industry which is a shrinking indus-
try nationally), with local factors contributing negatively. For this reason,
the authors argue, by looking at the national job growth estimates, that
the city will continue to grow, if the terrorist attacks did not significantly
change local factors.
In a attempt to estimate more precisely the impact of a natural disaster
on economic activity Rose and Guha [31] use a Computable General Equi-
librium model to determine of the effects of a loss of electricity supply due
to an earthquake, on other activities in Shelby County (TN). Using differ-
ent elasticities between the different types of labor, capital and other inputs
to simulate different time frames, the authors find that their results allow
too much substitution of inputs by capital and labor, when compared with
3
the Social Accounting Matrix, as well as a large increase in the price of
electricity and a large decrease in the use of electricity by final users.
3 Coping strategies and potential problems that
may arise from a disaster
One of the first questions that must be answered is how do people cope
with the sudden drop in income after a disaster. Looking at the 1998
floods in Bangladesh Dorosh et al. [11] find that households were more
likely to borrow money for food (increasing their total debt to 150% of
their current monthly expenses), with most loans coming from family and
neighbors, rather than NGOs, commercial banks and local money lenders,
which charged higher interest rates. Surprisingly the second most likely cop-
ing strategy was the disposal (consumption and/or selling) of asset (mostly
chickens and cereals), perhaps because those more severely affected by the
floods had lost more assets to begin with. Finally some people also changed
their eating habits by either reducing the number of meals eaten or go whole
days without eating (less frequent if they had access to NGOs and govern-
ment help); or relied on less preferred and less expensive food; or limited
portions at meal times. A similar study by McKenzie and Schargrodsky
[23] looks at the impact of the Argentinean crises on the shopping pattern
of household and find, as expected, that people not only switched to less
expensive substitutes, but also increased the time they spent shopping and
also increasing the number of shops they used.
The impact on income, and therefore consumption, either because of the
destruction of assets or because of the death of a parent, is important as
it can have lasting effect on children. For instance, Hoddinott and Kinsey
[21] look at the effect of the 1994-95 drought in Zimbabwe on children’s
height growth from 1993-97 and find not only that children less than 2 years
old grew slower that year, but also that they never caught-up in terms of
height. This is even more worrying as Thomas and Strauss [37] showed
that children experiencing slow height growth have slower progress through
school and also lower earnings in adulthood. Evans and Miguel [14] use sur-
veys made at 75 primary schools from 1998 to 2002 (multiple observations
per year) in one of the poorest regions of Kenya and find that the death
of parents has a large impact on the schooling of children, with participa-
tion rates declining an average of 5% after a parent’s death (higher rate for
girls, young children and poor performers at school), though children are
partially insured against such an event by social networks (orphans are usu-
4
ally adopted). Furthermore, these social networks do not seem to collapsing
even in regions with high levels of orphans (due to AIDS), for there is no
significant difference in school participation in areas with large amount of
orphans when compared with those with less.
On the other hand, if one of the children in the family dies as a result of
a disaster, then we can have an increase in the schooling of the remaining
children (que quantity-quality trade-off first hypothesized by Becker and
Lewis [1] and Becker and Tomes [2]). There have been several studies on
this with mixed results. A recent study by Qian [30] uses the regional and
time variations in the relaxation of China’s One Child Policy, which allowed
families to have a second child if the first child is a girl, to instrument for
family size and finds that the relaxation increased family size for first born
girls and that an additional sibling increased school enrolment of the first
born child by 18-20% on average (consistent with a model of fixed costs in
education).
As people suffer a large income shock there the possibility of violence
and uprisings. Miguel [24] for instance finds in poor areas of Tanzania that
extreme rainfall, which leads to large income drops, increases the number
of ’witches’ (old women, usually widows) killed, in particular in villages
that practice traditional religions, though there is no increase in other forms
of crimes. His results are in line Dreze and Khera [12], who links mur-
ders and socioeconomic measures across Indian districts. Similarly, Miguel,
Satyanath and Sergenti [26] use change in rainfall variation as an instrument
for economic growth in 49 African countries and find that current and past
economic slumps increases the possibility of civil conflict, while democracy,
religious and ethnic fractionalization and percentage of the country that is
mountainous (which helps maintaining an insurgency) are found not to be
statistically significant, implying that economic factors are more important
to civil conflict than political grievances. Their results are in line with Col-
lier and Hoeffler [6], [7], [8], (which also finds natural resource dependence,
lower male enrollment in secondary education and rebel military advantages
positively affects civil conflict) Elbadawi and Sambanis [13] (though they
had found a positive effect of ethnic fractionalization and a negative effect
for democracy) and Fearon and Laitin [15].
Following a disaster, generally, there is government and even NGOs inter-
vention in the most affected areas. This allows for the possibility of different
forms of corruption at the different stages of this intervention. For instance
Garrett and Sobel [16] find that between 1991-99 in the US, states that were
electorally important for the president (where his chances of reelection are
near 50%) had a higher rate of presidential disaster declaration (strictly up
5
to the president), in particular during election years, while having a governor
of the same political party as the president had no significant effect. Fur-
thermore, the Federal Emergency Management Agency (FEMA) gave higher
amounts of disaster relief if a state had more representatives on its oversight
subcommittees (in particular House subcommittees rather than Senate sub-
committees, possibly because House members have a higher percentage of
their constituency impacted by a disaster) and higher compensations in gen-
eral during election years. In the same line, Besley and Burgess [3] present
a model in which government’s response to shocks should be greater where
information flows are more developed as this enables vulnerable citizens to
monitor politicians and penalize them for not responding to their needs, and
also where political participation is greater as this increases the likelihood
that citizens will punish unresponsive incumbents. The authors find that,
in India (1952-92), the total amount of food grain per capita distributed
via the public system (government responsiveness) had a strong correlation
with newspaper circulation per capita, turnout in state elections (political
participation) and literacy, suggesting that media combined with literacy
literacy help citizens monitor politicians. Similarly, Kingston [22] finds a
negative link between newspaper circulation and transfer frequency in the
Indian Administrative Service between 1976-85 (possibly related with cor-
ruption scandals) and a positive impact of social integration (measured by
riots, where more socially integrated areas have less riots, and so less gov-
ernment officials are forced to transfer). Finally, Gugerty and Kremer [19]
looking at an international NGO program (providing organizational and
managerial training, and both agricultural inputs and training) targeted at
women groups’ in a poor region in Kenya, find that the benefits of this pro-
gram where much lower than expected (indeed lower than the agricultural
inputs given), possibly because most of the aid given was appropriated by
new members (both in terms of training and agricultural inputs), who joined
the group after the announcement of the program (the Rockefeller effect).
4 Psychological impact
The Psychiatric Literature focuses on severe stress symptoms (which may
lead to Posttraumatic Stress Disorder (PTSD), anxiety disorders, or depres-
sion) of survivors of disasters experience, as described by Young, Ford and
Watson [40]:
1. Dissociation (feeling completely unreal or outside yourself, like in a
dream; having ”blank” periods of time you cannot remember);
6
2. Intrusive reexperiencing (terrifying memories, nightmares, or flash-
backs);
3. Extreme attempts to avoid disturbing memories (such as through sub-
stance use);
4. Extreme emotional numbing (completely unable to feel emotion, as if
empty);
5. Hyper-arousal (panic attacks, rage, extreme irritability, intense agita-
tion);
6. Severe anxiety (paralyzing worry, extreme helplessness, compulsions
or obsessions); and
7. Severe depression (complete loss of hope, self-worth, motivation, or
purpose in life).
Most papers look at how a disaster increases the percentage of population
with severe stress symptoms and the duration of this hike. Wang et al [39]
in their study 3 and 9 months after a major earthquake in North of China
(1998), where able to, at least partially, address the problem of comparing
different rates of prevalence of stress symptoms when different diagnostic
methods where used. The authors show that in their case the difference
between DSM-IV rates of PSTD and DSM-III-R resulted from the severity
of PSTD symptoms criterion in DSM-IV.
Looking at the adult population, Simeon et al. [33] find high levels of
subjective distress and early dissociative and PTSD symptoms shortly af-
ter the World Trade Center Disaster, even within a group of individuals
who were not all maximally affected and whose personal involvement varied
greatly. Wang et al [39] show the importance of immediate relief and sub-
sequent reconstruction support in their study 3 and 9 months after a major
earthquake in North of China, finding that the more affected area (those that
had received more help) had lower rates of PTSD (the less affected village
did not have enough resources to repair or reconstruct its houses and re-
ported excessive worry about possibility of aftershocks). Goenjian et al [18]
find no significant difference in the percentage of individuals with PTSD,
anxiety and depression when they were exposed to either extreme earth-
quake trauma (natural disaster) or extreme violence (human made disaster)
in Armenia (1988), yet these rates were significantly higher than those of
a less affected area. Furthermore the authors find that those more affected
did not show improvement between 1.5 and 4.5 years after these events,
7
while those exposed to only mild earthquake trauma found a decrease in
the number of people with symptoms, partially because those most affected
did not receive help and lived with external remainders of the disasters. Fi-
nally, Havenar [20] find that 6 1/2 years after the Chernobyl disaster the
psychiatric problems had partially dissipated, with people from the more
affected region having similar prevalence of psychiatric problems as those
from less affected areas. Furthermore, the authors find that mothers in the
more affected regions suffered more psychiatric disorders.
In the case of children we observe the same patterns. Goenjian et al.
[17] find, 6 months after Hurricane Mitch which hit Nicaragua in 1998, that
school children of three cities affected with different degrees, had a high
incidence of PTSD, depression or both, and increasing with the severity of
the impact. Roussos et al [32] find a higher median incidence and more
severe PTSD scores among children and adolescents in the areas more af-
fected by the 1999 earthquake in Ano Liosia in Greece, and households that
suffered higher post-disaster difficulties (living arrangement, heating, water,
electricity) showed significantly higher differences in mean PTSD.
5 Conclusion
We have looked at the recent developments in the literature related with
natural and man made disasters. Most studies show that in economic terms
disasters have only a temporary impact (up to 30 years) returning to their
previous growth trend, though regions with higher frequency of disasters
have higher saving rates, possibly even higher growth rates.
There are however problems in the recovery process. Firstly, survivors
face a sharp, sudden decrease in income and mostly use loans, selling assets
and decreasing the amount of food consumed (or changing to lower brands)
to compensate. Children can suffer lasting effects (reflected in their height)
such as decreasing in schooling and lower lifelong income. Surviving siblings
can benefit from more attention and resources from children. Secondly, the
large increase in government spending in the affected area can lead to several
forms of corruption (with preferential treatment for some), though this will
be lower when politician can be put at check (because of a larger media
presence and a literate population that participates in elections).
Finally, severe stress symptoms from a disaster, such as post-traumatic
stress, anxiety and depression can have a lasting effect on the population,
though it can be mitigated if the population is assisted by NGOs and govern-
ment in the recovery process. Children are also susceptible of facing lasting
8
problems of severe stress symptoms.
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... Okuyama (2003), using a Solow-Swan model in an attempt to update Dacy and Kunreuther's theoretical framework, found that the rate of recovery is dependent on the resources allocated to the recovery activities. Freire (2005) also finds ample evidence that natural and man-made disasters have only a temporary negative impact, and that regions with a higher frequency of disasters have higher rates of growth. ...
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Losses from earthquakes are usually associated with building and other property damage. However, many businesses are forced to shut down, even if physically unscathed, when suppliers of lifeline services or other inputs are disrupted, or if their employees are unable to reach the workplace. Likewise, businesses may be forced to curtail operations if orders for their products are canceled by their customers, or if they are unable to deliver their products to market. Moreover, these impacts pertain not only to immediate suppliers and customers, but to successive rounds of upstream or downstream links. The totality of these impacts is some multiple of the businesses directly impacted, hence the typical application of some form of “multiplier” analysis.
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