Natural Hazard-Induced Disasters and Production Efficiency: Moving Closer to or Further from the Frontier?

Preeya S Mohan,Eric Strobl,Nekeisha Spencer

doi:10.1007/s13753-019-0218-9

Abstract

Production efficiency is a key determinant of economic growth and demonstrates how a country uses its resources by relating the quantity of its inputs to its outputs. When a natural hazard-induced disaster strikes, it has a devastating impact on capital and labor, but at the same time provides an opportunity to upgrade capital and increase labor demand and training opportunities, thereby potentially boosting production efficiency. We studied the impact of natural hazard-induced disasters on countries’ production efficiency, using the case study of hurricanes in the Caribbean. To this end we built a country-specific, time-varying data set of hurricane damage and national output and input indicators for 17 Caribbean countries for the period 1940–2014. Our results, using a stochastic frontier approach, show that there is a short-lived production efficiency boost, and that this can be large for very damaging storms.

Highlights

Natural hazard-induced disasters bring about widespread destruction and disruption to economic production and even considerable loss of life
Few studies have looked at the production efficiency effects of natural hazard-induced disasters, which may be of even more importance because production efficiency demonstrates how a country uses its resources by relating the quantity of its inputs to its outputs and is a key determinant of economic growth
17,682.28 68,503.75 0.97 1.51 9 108 55.87 1.17 (i) Output is real Gross Domestic Product (GDP) at chained purchasing power parities (PPPs) in millions of 2011 US dollars. (ii) Capital is capital stock at constant 2011 national prices in millions of 2011 US dollars. (iii) Employment is the number of persons engaged in millions. (iv) Hurricane Index is the cubic wind speed for 119 km/hr and above. (v) Rainfall and temperature are annual averages measured in millimeters and degrees Celsius respectively

Summary

Introduction

Natural hazard-induced disasters bring about widespread destruction and disruption to economic production and even considerable loss of life. Disaster-stricken countries dedicate a lot of resources to addressing the impacts of these hazardous events in order to design and implement policies to combat and mitigate their damaging effects. While these disasters by definition bring about severe losses, some studies have found that economic growth increases in their aftermath (Albala-Bertrand 1993; Skidmore and Toya 2002), while other studies have concluded that growth decreases (Noy and Nualsri 2007; Raddatz 2007; Noy 2009). Few studies have looked at the production efficiency effects of natural hazard-induced disasters, which may be of even more importance because production efficiency demonstrates how a country uses its resources by relating the quantity of its inputs to its outputs and is a key determinant of economic growth

Methods

Discussion

Conclusion