Economic Lessons of the Kobe Earthquake

The earthquake that struck the Japanese port city of Kobe in the early morning of January 17, 1995, was the most severe quake ever to strike a modern urban area. In this article, I offer an overview from an economic perspective of Kobe 19 months after the event and what has been learned since. Events both preceding and following the quake are analyzed in terms of basic economic concepts. Though hardly novel, this perspective is seldom applied systematically to natural disasters.

Mitigating disaster losses through insurance

Losses from natural disasters have increased in recent years due to growth of population in hazard-prone areas and inadequate enforcement of building codes. This article first examines why homeowners have not voluntarily adopted cost-effective protective measures and have limited interest in purchasing insurance. It then proposes a disaster-management program which utilizes insurance coupled with well-enforced building codes to reduce future damage. Banks and financial institutions play a key role in this program by requiring inspections of homes as a condition for a mortgage.

Shaken, Not Stirred: The Impact of Disasters on International Trade

This paper examines the impact of major disasters on import and export flows using a gravity model (170 countries, 1962-2004). As a conservative estimate, an additional disaster reduces imports on average by 0.2% and exports by 0.1%. Despite the apparent persistence of bilateral trade volumes, we find that the driving forces determining the impact of disastrous events are the level of democracy and the geographical size of the affected country. The less democratic and the smaller a country the greater is its loss due to a catastrophe.

The Gendered Nature of Natural Disasters: The Impact of Catastrophic Events on the Gender Gap in Life Expectancy, 1981–2002

Natural disasters do not affect people equally. In fact, a vulnerability approach to disasters would suggest that inequalities in exposure and sensitivity to risk as well as inequalities in access to resources, capabilities, and opportunities systematically disadvantage certain groups of people, rendering them more vulnerable to the impact of natural disasters. In this article, we address the specific vulnerability of girls and women with respect to mortality from natural disasters and their aftermath.

Are external shocks responsible for the instability of output in low-income countries?

External shocks, such as commodity price fluctuations, natural disasters, and the role of the international economy, are often blamed for the poor economic performance of low-income countries. This paper quantifies the impact of these different external shocks using a panel vector auto-regression approach and determines their contributions to output volatility in low-income countries. We find that they can only explain a small fraction of the output variance of a typical low-income country. Other factors, most likely internal causes, are the main source of fluctuations.

Economic policies and the impact of natural disasters on economic growth: A threshold regression approach

This paper investigates the impact of natural disasters on the long-term macroeconomic performance of a country, More specifically, we want to see whether the impact of natural disasters on economic growth is uniform across countries or it is differentiated according to the macroeconomic policy environment and other structural characteristics of the countries at hand.

Does rising income increase or decrease damage risk from natural disasters?

Recent empirical literature has found a negative relationship between income per capita and measures of risk from natural disaster, supportive of logic that higher incomes allow countries to mitigate disaster risk. We argue that behavioral changes at the micro-level in response to increasing income (such as location choice and extent of costly abatement activity) may lead to a non-linear relationship between aggregate incomes and disaster damages, where the risks increase with income before they decrease.

Creative Disasters? Flooding Effects on Capital, Labour and Productivity Within European Firms

This paper examines the impact of floods on the firms' capital accumulation, employment growth, and productivity by using a difference-in-difference (DID) approach and considering the firms' asset structure. We find evidence that, in the short run, companies in regions hit by a flood show on average higher growth of total assets and employment than firms in regions unaffected by flooding. The positive effect prevails for companies with larger shares of intangible assets.

Disaster safety nets for developing countries: Extending public–private partnerships

In developed countries, public-private partnerships involving insurance companies and governments often provide security against the human and economic losses of disasters. These partnerships, however, are neither available nor affordable in most highly exposed developing countries. In this paper we examine recent innovations in financial risk management that extend traditional public-private partnerships to include NGOs, international financial institutions and other donors.

The macroeconomic consequences of disasters

Natural disasters have a statistically observable adverse impact on the macro-economy in the short-run and costlier events lead to more pronounced slowdowns in production. Yet, interestingly, developing countries, and smaller economies, face much larger output declines following a disaster of similar relative magnitude than do developed countries or bigger economies. A close study of the determinants of these adverse macroeconomic output costs reveals several interesting patterns.