The Effects of Natural Disasters on the Economy

By Shane Hall, eHow Contributor

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o Natural disasters ha$e $aryin% economic effects beyond the affected re%ion#
Earth&ua'es, floods, hurricanes, tornadoes, drou%hts and other natural disasters affect
infrastructure and !hysical ca!ital, em!loyment, farm !roduction, ener%y and other as!ects of an
economy# The se$erity of these effects on the lar%er economy de!ends on $arious factors, includin%
the disaster itself, the affected area and the ca!acity of national and re%ional institutions to !ro$ide
relief and be%in efforts to rebuild#
(# Physical Ca!ital Effects
o Earth&ua'es, tornadoes, hurricanes and other natural disasters de$astate !hysical ca!ital,
such as homes, business !ro!erties and trans!ortation infrastructure, includin% roads and air!orts#
This often disru!ts economic acti$ity in the affected re%ion# Howe$er, as %o$ernment disaster aid
reaches the affected areas and rebuildin% be%ins, the aftermath of a natural disaster often !resents
an o!!ortunity for im!ro$ed infrastructure# )ichi%an State *ni$ersity economist )ar' S'idmore told
The New +or' Times: ,-hen somethin% is destroyed you don.t necessarily rebuild the same thin%
that you had# +ou mi%ht use u!dated technolo%y# +ou mi%ht do thin%s more efficiently#,
Hi%her Em!loyment /e$els
o )any times, an area hit by a natural disaster will e0!erience a 1um! in em!loyment le$els#
2n increase in construction 1obs, as residents and business owners in affected areas rebuild their
!ro!erties, accounts for much of the increase in 1obs# The New +or' Times re!orted that a year
after Hurricane 2ndrew struc' southern 3lorida in "44(, that area e0!erienced a 1um! in the
number of !eo!le wor'in%, lar%ely because of new construction 1obs as rebuildin% be%an#
Reduced 2%ricultural Production
o 3loods, drou%hts and other natural disasters can affect a%ricultural !roduction, leadin% to
hi%her food !rices for consumers# The e0tent of the economic im!act de!ends in !art on the ty!e of
disaster and its se$erity# Hurricanes and floods, for e0am!le, can wash away rich soil, affectin% cro!
yields in the short run# 2 lon%5term drou%ht, meanwhile, can destroy an entire har$est and lead to
li$estoc' deaths, affectin% !roduce and meat !rices#
Hi%her Ener%y Prices
o Natural disasters that affect im!ortant ener%y !roduction centers can lead to sudden
increases in ener%y, such as hi%her oil !rices# 2n e0am!le is a hurricane or other natural disaster
affectin% the *#S# ulf Coast, a ma1or !roducer of oil for much of the nation# Hurricane 6atrina in
(778 shut down ma1or oil refineries and !i!elines alon% the ulf Coast, resultin% in hi%her oil !rices#
Hi%h ener%y costs affect the entire economy because ener%y re!resents a 'ey element in
!roduction of %oods and ser$ices# The Con%ressional Research Ser$ice !oints out that the lon%5
term im!act of hi%her ener%y costs de!ends on how &uic'ly refineries, !i!elines and other ener%y
facilities under%o re!airs and resume !roduction#
Reduced Trade
o Disasters affectin% 'ey trade centers, such as coastal areas that host ma1or !orts, can
im!act the le$el of im!orts and e0!orts# The Con%ressional Research Ser$ice notes that Hurricane
6atrina affected se$eral of the nation.s ma1or !orts# The effects may be only short5term, de!endin%
on how soon affected !orts resume o!erations, recei$in% and shi!!in% %oods#
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References
The New +or' Times: Do Natural Disasters Stimulate Economic rowth>
*ni$ersity of Northern :owa: The Effects of Natural Disasters on /on% Run rowth
Con%ressional Research Ser$ice: The )acroeconomic Effects of Hurricane 6atrina
Resources
:nter52merican De$elo!ment Ban': The Economics of Natural Disasters
Photo Credit hurricane 'atrina ima%e by 1c!1r from 3otolia
Pros = Cons on Economy 3rom Natural Disasters
By Siobhan E%an, eHow Contributor
u!dated )arch "", (7""

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Houses are usually destroyed by $ery bi% natural disasters#
-here$er you li$e, whether it.s near an earth&ua'e fault, in the tornado alley or alon% a ri$er that floods,
some form of natural disaster is always a !ossibility# E$en in the safest !laces, li%htnin% can stri'e# Ta'in%
!recautions and insurin% your $aluables ma'es %ood sense# :f a natural disaster does stri'e, it.s not
sur!risin% the local economy is affected ne%ati$ely in some ways# -hat is not so a!!arent is that natural
disasters can ha$e a !ositi$e effect on the local economy as well#
"# Con: :nsurance Ris' :ncreases
o Natural catastro!hes !ut economic !ressure on insurance com!anies as well as on the
insured# The National Bureau of Economic Research studied the catastro!hic effects of natural
disasters on insurance mar'ets and found that durin% "4?9 to (779, une0!ected catastro!hes !ut
economic !ressure on insurers and !olicy holders# :nsurers res!ond to the increased ris's after
natural disasters by raisin% insurance rates, ma'in% insurance more e0!ensi$e for !olicyholders#
2dditionally, une0!ected catastro!hes reduce total !remiums earned in the state, reduce the
numbers of insurers in the state and cause firms to lea$e#
Con: -or'li$es are Disru!ted
o 2ny natural disaster, if se$ere enou%h, will affect !eo!le.s day5to5day li$es, and that
includes their li$elihood# :f a mudslide destroys the family car, %ettin% to wor' becomes a lot more
difficult# :f a nor.easter floods streets in your coastal town it mi%ht also flood the office where you
wor' or the store that you own# The lost income of a shuttered business durin% the disru!tion after
a natural disaster affects the com!any.s bottom line#
Pro: Post5Disaster Cleanu! and Restoration
o Certain businesses are !art of the economic sector that hel!s !eo!le %et their li$es bac' to
normal after a natural disaster# Construction contractors, tree trimmers, cleanin% com!anies, snow
remo$al contractors, e$en car dealershi!s can benefit economically from !eo!le.s need to clear out
debris, rebuild their home or buy a new car after a tornado, earth&ua'e or ice storm# 2ccordin% to a
(77? ,New +or' Times, article, studies of earth&ua'es in California and 2las'a concluded the
earth&ua'es stimulated economic acti$ity# There is also e$idence that hurricane5!rone countries
tend to e0!erience hi%her %rowth rates# Studies ha$e e$en found a !ositi$e relationshi! between
disasters and subse&uent inno$ation#
Con: :nfrastructure Dama%e
o Natural disasters can im!ede commerce and trans!ortation when they destroy
infrastructure# 3loodin% in @ueensland, 2ustralia, in early (7"" destroyed a rail line that ser$ed an
ener%y com!any and trans!orted coal, !assen%ers and %rain# /andslides also destroyed !art of a
brid%e# :n addition to !hysical structures, com!uter networ'in% infrastructure can %o down,
disru!tin% :nternet access for the affected area# 2ccordin% to a study out of the eor%ia :nstitute of
Technolo%y, networ'5ser$ice disru!tion is ine$itable after lar%e5scale natural disasters# 2fter
Hurricane 6atrina, for e0am!le, close to (A !ercent of com!uter subnets B!ortions of com!uter
networ'sC were unreachable, the study concluded# The ma1ority of these unreachable subnets
lasted at least four wee's#
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References
National Bureau of Economic Research: The Catastro!hic Effects of Natural Disasters
on :nsurance )ar'ets
New +or' Times: ,Do Natural Disasters Stimulate Economic rowth>,
Bloomber%: ,@ueensland 3loods Destroy Brid%e, Halt Trains for Passen%ers, Coal,
rain,
aTech: :nference of Networ'5Ser$ice Disru!tion u!on Natural Disasters
Read more: Pros = Cons on Economy 3rom Natural Disasters H eHow#com
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