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Climate Economics Seminar: The Causal Effect of Environmental Catastrophe on Long-Run Economic Growth

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Date(s): December 13, 2012, 1 - 2:30 PM

Location: Room 4144, EPA West Building, 1301 Constitution Ave., NW, Washington, DC

Contact: Carl Pasurka, 202-566-2275

Presenter: Solomon Hsiang (Princeton, UC Berkeley) and Amir Jina (Columbia)

Description: Do natural disasters have a causal effect on economic development? Reconstructing every country's physical exposure to the universe of tropical cyclones during 1950-2008, we exploit year-to-year variation in cyclone strikes to identify the effect of disasters on long-run growth. The data reject long-standing hypotheses that disasters stimulate growth via "creative destruction" or that short-run losses disappear following migrations or transfers of wealth. Instead, we find robust evidence that national incomes decline, relative to their pre-disaster trend, and do not recover within twenty years. This result is consistent across income sources and regions, as well as countries of different geographic size and income level. Global patterns of climate-based adaptation, in addition to similar long-run changes in consumption, investment, trade and international aid, further corroborate this finding. National income loss arises from small but persistent suppression of annual growth rates spread across the fifteen years following disaster, generating large and significant cumulative effects: a 90th percentile event reduces per capita incomes by 7.4% two decades later. The gradual nature of these losses render them inconspicuous to a casual observer, however simulations indicate that they have dramatic influence over the long-run development of countries that are endowed with regular or continuous exposure to disaster.

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