Environmental Disaster and Economic Change: Do tropical cyclones have permanent effects on economic growth and structure?

Natural disasters have important, often devastating, effects upon economic growth and well-being. Due to this, disasters have become an active area of recent research and policy attention. However, much of this research has been narrowly focused, relying on anecdotal evidence and aggregated data to support conclusions about disaster impacts in the short-term. Employing a new global data set of tropical cyclone exposure from 1960 to 2008, we investigate in greater detail whether permanent changes in economic performance and structure can result from these extreme events in some cases. Our macro-economic analyses use the World Development Indicator dataset and have shown promising results: there are dramatic long-term economic transformations associated with tropical cyclones across a number of countries and industries. This effect is most clearly seen in Small Island Developing States (SIDS) and some countries in Latin America, where negative changes in long-term growth trends are observed in the years following a large tropical cyclone. In many economies with a high exposure to tropical cyclone damage, there are noticeable structural changes within the economy. The impacts of disasters might be expressed through various economic and social channels, through direct loss of lives and infrastructure damage; for instance, the destruction of infrastructure such as ports may damage export opportunities where replacement capital is not readily available. These structural changes may have far-reaching implications for economic growth and welfare. Larger nations subjected to the impacts of tropical cyclones are thought to be able to relocate economically important activities that are damaged by cyclones, and so long-term trend changes are not observed, even for events that cause a large immediate decrease in national productivity. By investigating in a more rigorous fashion the hypothesis that the environment triggers these permanent economic changes, our work has implications for the conceptual foundations of both economic theory and sustainable development.