Vector-Autoregression Simulation Study of Multiple Shocks on Louisiana's Economic Performance

Abstract

Summary Catastrophic events such as hurricanes and oil spills have enormous impacts on the local and regional economies and labor markets. The US Gulf Coast experienced the largest marine oil spill, the highest mobilization of spill-response resources, and also the first drilling moratorium in the history of deepwater operations during 2010. Another regional disaster, Hurricane Katrina impacted Louisiana, Mississippi, and Alabama, as it ripped over the core of the Gulf of Mexico (GOM) producing region, one of the most-important oil-and-gas production areas of the world, during 2005. The disruption of oil-and-gas production and fisheries caused by an oil spill or a drilling moratorium can be modeled as negative shock impacts on the local labor markets. Therefore, the analysis of the damage started by the storms at offshore oil-and-gas drilling and production facilities brings a valuable opportunity to learn how to be well-prepared for hurricanes, with the aim of avoiding future damage. The objective of this paper is to find the impact of such shocks on the employment numbers and wages in the US Gulf Coast region. This research uses econometric tools to provide quantitative estimates of the response and correlation between past and current activities of Louisiana employment and other relevant regional economies. In this study, we have determined the likely magnitude of the net economic impact of a major oil spill such as the Deepwater Horizon oil spill on certain sectors with the vector autoregressive (VAR) method. Also, the potential impacts of future changes in employment after a disaster on the economy are discussed.