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Earthquakes and Economics

Explore the impact of earthquakes on GDP through case studies like the Tohoku and Canterbury earthquakes, and the Haiti earthquake. Discover how reconstruction efforts and industry effects shape economic outcomes post-disaster.

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Earthquakes and Economics

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  1. Earthquakes and Economics The Unexpected Effects of Disaster – Dylan HAber

  2. Presentation Overview • GDP • Broken Windows Fallacy • Case Example • Conclusion

  3. Gross Domestic Product • Important indicator of economic health • “Value of all finished goods and services produced within a country’s borders in a specific time period” • Calculated in two ways: • Income Approach • Expenditure Approach • GDP/Capita takes into account population

  4. GDP Analysis Pros Cons No black market Negative externalities Non-market activities Doesn’t measure distribution Doesn’t account for welfare loss • Easy to measure • Globally used • Proxy for social welfare

  5. Broken Window Fallacy

  6. Broken Window Fallacy Mr. Breaker Mr. Fixer Paid to fix window Replaces old product No new product created • Destroys Window • Calls Mr. Fixer • Loses disposable income

  7. Overview • GDP and how it’s calculated • Broken Window Fallacy • Case Studies • Conclusion

  8. GDP

  9. HDI

  10. Tohoku Earthquake 2011

  11. Effects • Estimated cost of rebuilding of $122B • Immediately negative for growth but positive over the medium-term • Took 0.2-0.3% off GDP • Damage to export infrastructure and industrial production caused lull • Boost in 4th quarter GDP from construction efforts • Benefitted from high levels of excess capacity

  12. Excess Capacity • Extent to which an economy is operating below the maximum sustainable level of production

  13. Canterbury Earthquakes 2010/2011

  14. Effects • High reconstruction cost of 10% of GDP (Japan was 3%) • NZ noted that damage was still “less than anticipated” • Demand in certain sectors increased • Employment in construction increased 18% • Long-term positive impact on GDP • Timing: global recession left excess capacity in the building sector • GDP shows impact of rebuilding but does not pickup on significant loss of wealth

  15. Industry Effects Can Benefit Impacted Negatively Retail Food Services Travel / Accommodation Financial / Insurance • Construction • Healthcare • Utilities

  16. I Digress… • Researchers at the University of Canterbury found that residents turned to eating unhealthy comfort food following the earthquake

  17. Haiti Earthquake 2010

  18. effects • Rebuilding was estimated to cost at least 15% of GDP • Nominal amount was low (low $Bs) • No infrastructure or institutional support to rebuild • Lack of excess capacity • GDP per capita decreased sharply

  19. Conclusion • Welfare Loss • Immediate decrease in GDP growth for the quarter • GDP increases in subsequent quarters and years • GDP shows impact of the disruption and rebuilding on expenditure and production but not the significant loss of wealth caused by earthquakes • Hurt consumer sentiment • Economic spare capacity and infrastructure is necessary • Anything too great will simply hurt GDP (<20% damage)

  20. Masking the Damage

  21. Sources • "Gross Domestic Product - GDP." Investopedia. N.p., n.d. Web. 06 Apr. 2014 •  "HDI Surprisingly Similar to GDP/capita." Gapminder. N.p., n.d. Web. 02 Apr. 2014. • "Limitations of GDP Statistics." Economics Online. N.p., n.d. Web. 04 Apr. 2014. • "March 11th tsunami a record 40.5 metres high NHK". .nhk.or.jp. 13 August 2011. Archived from the original on 28 July 2011. Retrieved 7 September 2011. • Arnold, Michael. "Earthquake to Hit GDP in Short Term." The Wall Street Journal. Dow Jones & Company, n.d. Web. 02 Apr. 2014. • "Impact of Japan's Earthquake." US Economy. N.p., n.d. Web. 03 Apr. 2014. • "Canterbury Earthquakes." New Zealand Parliament. N.p., n.d. Web. 07 Apr. 2014. • "Christchurch Earthquake Will See Long-term GDP Rise." The New Zealand Herald. N.p., n.d. Web. 05 Apr. 2014 • "Haiti Earthquake 2010." - Economic Impact of the Earthquake. N.p., n.d. Web. 06 Apr. 2014 • Andres R. Martinez and Lori Rothman - January 14, 2010 19:07 EST. "Haiti Earthquake to Cost Economy at Least 15% of GDP (Update2)." Bloomberg.com. Bloomberg, 14 Jan. 2010. Web. 04 Apr. 2014.

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