Unit 4 Macro: Natural Disasters and their Economic Impact

From tsunamis to tornadoes, from droughts to floods, 2011 was a particularly nasty year for natural disasters in many parts of the world. These natural disasters inevitably have demand and supply side effects affecting not just those countries affected but ripple impact across regions and in the broader global economy.

The Al Jazeera news video report below provides a clear overview of some of the major natural climatic shocks of 2011 and could easily be used as an introductory resource to discuss what are some of the micro and macroeconomic effects in both the short and medium term.

These include:

• Effects on the stock of physical capital / infrastructure
• Impact on a country’s human capital
• Effects on commodity prices, export revenues
• Effects on agricultural output, profits, investment, productivity
• Ripple effects on manufacturing industries and energy supply/cost
• Impact on state tax revenues and the costs of re-building and providing emergency financial support
• Effect on the movement of population following extreme climatic events
• Natural disasters and changes in the distribution of income / risk of poverty

This Economist graphic (published in Jan 2012) looks at the human cost of natural disasters and claims that “the world has succeeded in making natural disasters less deadly.”

Futher reading:

Top 5 worst natural disasters of 2011 (Global Post)

Natural disasters and extreme weather (Guardian news reports)

The cost of calamity (March 2011) The Economist

Creative Destruction - James Surowiecki, New York Post (March 2011)

The Economics of Natural Disasters - Australian National University essay prize winner, 2011 (pdf link)

Rebuilding

According to the World Bank, since the year 2000, almost 1 million people have lost their lives to disasters caused by natural hazards. 2 billion people have been affected. 1 trillion dollars in damage was caused.