Natural disasters have always occurred, but in recent years they have multiplied and the damage they cause affects more and more people and businesses. This can be attributed to harmful human interference with the environment, which triggers climate change. According to a report by the International Disaster Database (EM-DAT), 389 events classified as natural disasters occurred in 2020 alone, causing 15,080 deaths and more than 38 million injuries.
What determines the amount of economic losses caused by natural disasters?
According to the EM-DAT classification, natural disasters can be divided into several categories: geophysical (earthquakes, mass movements, volcanic eruptions), meteorological (extreme temperatures, storms, hurricanes), hydrological (floods, snow avalanches),
climatic (droughts, forest fires), biological (epidemics, plagues) and extraterrestrial (meteorite impacts). Depending on the type of disaster and the scale at which it occurs, the strength of its effect can vary.
The impact on certain sectors of the economy can also be different. A massive earthquake, for example, will have a much more tragic impact and the process of rebuilding infrastructure can take much longer and consume more resources than a small flood.
The region in which the disaster occurs is also important. Countries that frequently
experience such disasters can mitigate their negative effects to some extent, as they are better prepared for them than countries where natural disasters are rare. However, despite this, it is the countries with the highest risk of disasters that lose the most, because up to several dozen such events can occur in these regions every year, and it is often these areas that experience the most serious and tragic disasters.
Although the loss of human and physical capital affects only the region where phone number list the disaster occurred,
due to increasing globalization, the economic effects are often felt in the country’s closest partners as well. In contrast, when a large country such as the United States is affect
ed, for example, the economic effects can be global.
Direct and indirect effects of natural disasters
The losses mentioned in human capital, i.e. deaths, physical and psychological in
juries, as well as in physical capital – damage to infrastructure, fixed assets and raw materials –
are the direct effects of disasters, which in economic and financial analysis in 5 steps turn produce a series of indirect effects. These in turn i
nclude, among others, a reduction in the production of goods and services, a reduction in investment
, migration, preventive actions by society (for example, an increase in savings). All these factors, caused by a negative supply shock, such as the occurrence of a natural disaster, can consequently cause an economic recession.
The direct effects of natural disasters should be classified as short-term qatar data effects. They are
much easier to measure than the indirect ones. After a disaster
studies are usually carried out to estimate material losses. The estimation of indirect, long-term effects is more complicated. These, in turn,
can be measured by analysing changes in, for example, the GDP index, the economic activi
ty index, the real household consumption index, the consumer price index, the share of the affected country in world exports and imports, the exchange rate of the national currency, national stock market indices, the unemployment rate or the number of company bankruptcies in the affected country.
However, it is important to bear in mind that the observed changes in all the above indicators will not only be caused by a negative supply shock caused by a natural disaster. The economy is affected by many other factors at the same time and it is difficult to isolate the effect of just one of them.
Special macroeconomic models are therefore used to predict and estimate the strength of the long-term effects caused by a natural disaster.
All of the effects mentioned above have a negative impact on the economy, and it cannot be denied that they are the vast majority. However, there are also a few positive indirect effects that can occur. With possible financial help from abroad or by using one’s own resources, it is possible to rebuild a damaged region. Rebuilt infrastructure is usually more resistant to further attacks from the elements. In addition, it is possible to modernize it and introduce better technology. Therefore, the effect of reconstruction will be higher productivity in the future, which is undoubtedly a positive effect for the economy.
Results of empirical studies on the impact of natural disasters on the economy
Economists have been studying the impact of natural disasters of all kinds on the economy for years. The main conclusion of studies on direct effects is very intuitive: the short-term direct effects of natural disasters always have a negative impact on the economy. It is also not surprising that relatively greater material losses fall on more developed countries, where more expensive buildings and fixed assets can be destroyed, and that these costs increase over time,
which can also be explained by increasingly expensive infrastructure. Researchers also largely agree on the correlation that natural disasters cause fewer deaths in richer countries. However, there are doubts about the linearity of this relationship.
The results of studies on indirect effects are much more interesting. Climate disasters certainly have a negative impact on GDP growth dynamics,
but the strength of the effect is not always directly proportional to the magnitude of the disaster and the relationship is not linear. Moreover,
economic recessions are felt more in less developed countries. Studies on the impact of extreme weather events such as hurricanes show that they do not have a negative impact on all industries. Sectors such as agriculture, manufacturing or tourism are the most affected. In contrast,
companies in the construction sector are positively affected, mainly due to the need to rebuild damaged infrastructure.
This confirms the previous thesis on the possible, albeit limited, positive effects of natural disasters. Even more interesting conclusions were reached by economists
(Leiter, Oberhofer and Raschky) who studied the consequences of floods in Europe. In many cases, employment and capital accumulation increased in the affected regions, while productivity remained unchanged. It is therefore reasonable to assume that in order to maintain productivity at pre-flood levels,
Firms had to increase investment and employment.
There is little research in the context of the long-term effects of natural disasters, mainly
due to data problems and the difficulty of isolating the impact of a single factor on a given indicator over a
dozen or more years. However, what does exist shows that disasters also reduce economic growth rates in the years following the event.
What can we do to counteract the effects of natural disasters?
Natural disasters undoubtedly have a negative impact on the economy of the country in which they occur, and thanks to increasing globalisation, this effect is also spreading to other countries. It is therefore important to limit the harmful effects of humans on the environment. To a certain extent,
man-made climate change contributes to the occurrence of avoidable natural disasters. In addition, governments of countries that are particularly vulnerable to these phenomena
must try to minimise their negative economic effects by making appropriate preparations.