Abstract
Abstract. Disaster damages have negative effects on the economy, whereas reconstruction investment has positive effects. The aim of this study is to model economic causes of disasters and recovery involving the positive effects of reconstruction activities. Computable general equilibrium (CGE) model is a promising approach because it can incorporate these two kinds of shocks into a unified framework and furthermore avoid the double-counting problem. In order to factor both shocks into the CGE model, direct loss is set as the amount of capital stock reduced on the supply side of the economy; a portion of investments restores the capital stock in an existing period; an investment-driven dynamic model is formulated according to available reconstruction data, and the rest of a given country's saving is set as an endogenous variable to balance the fixed investment. The 2008 Wenchuan Earthquake is selected as a case study to illustrate the model, and three scenarios are constructed: S0 (no disaster occurs), S1 (disaster occurs with reconstruction investment) and S2 (disaster occurs without reconstruction investment). S0 is taken as business as usual, and the differences between S1 and S0 and that between S2 and S0 can be interpreted as economic losses including reconstruction and excluding reconstruction, respectively. The study showed that output from S1 is found to be closer to real data than that from S2. Economic loss under S2 is roughly 1.5 times that under S1. The gap in the economic aggregate between S1 and S0 is reduced to 3% at the end of government-led reconstruction activity, a level that should take another four years to achieve under S2.
Highlights
Natural disasters cause serious direct losses, such as house collapse or infrastructure damage, and have strong impacts on the development of the macro economy, such as economic decline and unemployment (FEMA, 2011; Przyluski and Hallegatte, 2011)
There has been a great amount of research on the impact of natural disasters on the economy based on the input–output (I–O) model, econometric model and computable general equilibrium (CGE) model
Normal investments are distributed among various industries based on the industry investment structure in the base year, and transformed into the capital stock (XCn) in the following period according to the investment coefficient matrix (Eq 3) (Miller and Blair, 1985)
Summary
Natural disasters cause serious direct losses, such as house collapse or infrastructure damage, and have strong impacts on the development of the macro economy, such as economic decline and unemployment (FEMA, 2011; Przyluski and Hallegatte, 2011). There has been a great amount of research on the impact of natural disasters on the economy based on the input–output (I–O) model, econometric model and computable general equilibrium (CGE) model These studies have made significant contributions in this respect but still require further improvement, i.e., the positive effects of reconstruction investment need to be incorporated into the assessment framework. In terms of the positive effects of reconstruction, this model incorporated a parameter called overproduction capacity This overproduction capacity can increase because additional equipment and workers can move to the affected region.), which was difficult to relate to the real aid that the government provided for reconstruction in the aftermath of the disaster, such as the tremendous investments, tax benefits, and technical support. 2.1 The mechanism of the impacts that natural disasters exerted on the social economy
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