2021-22 Abstract: 

We aim to understand the mechanisms through which natural disasters can affect national economies around the world, using a novel combination of economic and earth science data and methods. Historically, economists have believed that disasters are “good for business,” and increase economic growth. However, a major challenge in understanding what actually occurs empirically has been the lack of cross-disciplinary engagement between social and physical sciences, as disasters are defined and measured inappropriately for socioeconomic reasons. In response, recent economic research using methods from earth science has shown that, when measured correctly, disasters suppressed economic growth for decades. The mechanisms are not yet understood, but theory suggests that long-term economic damage must be due to changes in investment behavior in the economy. Therefore, we investigate disaster effects at the firm-level, since firms are the driver of economic growth and investment within a country. Our focus is earthquakes and hurricanes, which are global in scope and affect roughly half of the countries on Earth. Using extensive firm-level data from dozens of countries combined with novel data on disaster exposure, we examine firm dynamics when a disaster strikes. Understanding mechanisms is parcularly important as this would guide policy responses that will help society better cope with natural disasters.