Destructive destruction or creative destruction? Unraveling the effects of tropical cyclones on economic growth

Abstract

This paper investigates the contemporaneous and long-term effects of tropical cyclones and the related policies on economic growth and associated structural changes. We consider three distinguishing features of tropical cyclones, including wind speed, precipitation, and storm surge height, as well as one policy-related feature of tropical cyclones in Hong Kong—the issuing of the No. 8 signal. Using data from Hong Kong for the period 1980–2018, we show that although tropical cyclone landfalls on the coast of Hong Kong have much higher average wind speeds, wind speed does not have a significant influence on either overall GDP or sectoral GDP. Economic losses from tropical cyclones are driven mainly by the issuing of the No. 8 signal, a climate policy in Hong Kong that suspends daily activities in dangerous tropical cyclone weather. With an average shutdown of 1.87 days due to No. 8 signals, the economic loss is about 0.9 billion U.S. dollars. However, in the long run, the No. 8 signal policy has delayed positive impacts on total GDP and some sectoral growth. Our analysis suggests that at least five years of recovery is necessary for damage attributed to severe tropical cyclones.