The Causal Effect of Environmental Catastrophe on Long-Run Economic Growth: Evidence from 6,700 Cyclones

69 Pages Posted: 4 Aug 2014 Last revised: 12 Aug 2021

See all articles by Solomon Hsiang

Solomon Hsiang

University of California, Berkeley; National Bureau of Economic Research

Amir Jina

Harris Public Policy, University of Chicago ; National Bureau of Economic Research (NBER)

Date Written: July 2014

Abstract

Does the environment have a causal effect on economic development? Using meteorological data, we reconstruct every country's exposure to the universe of tropical cyclones during 1950-2008. We exploit random within-country year-to-year variation in cyclone strikes to identify the causal effect of environmental disasters on long-run growth. We compare each country's growth rate to itself in the years immediately before and after exposure, accounting for the distribution of cyclones in preceding years. The data reject hypotheses that disasters stimulate growth or that short-run losses disappear following migrations or transfers of wealth. Instead, we find robust evidence that national incomes decline, relative to their pre-disaster trend, and do not recover within twenty years. Both rich and poor countries exhibit this response, with losses magnified in countries with less historical cyclone experience. Income losses arise from a small but persistent suppression of annual growth rates spread across the fifteen years following disaster, generating large and significant cumulative effects: a 90th percentile event reduces per capita incomes by 7.4% two decades later, effectively undoing 3.7 years of average development. The gradual nature of these losses render them inconspicuous to a casual observer, however simulations indicate that they have dramatic influence over the long-run development of countries that are endowed with regular or continuous exposure to disaster. Linking these results to projections of future cyclone activity, we estimate that under conservative discounting assumptions the present discounted cost of "business as usual" climate change is roughly $9.7 trillion larger than previously thought.

Suggested Citation

Hsiang, Solomon and Jina, Amir, The Causal Effect of Environmental Catastrophe on Long-Run Economic Growth: Evidence from 6,700 Cyclones (July 2014). NBER Working Paper No. w20352, Available at SSRN: https://ssrn.com/abstract=2475699

Solomon Hsiang (Contact Author)

University of California, Berkeley ( email )

2607 Hearst Avenue
Berkeley, CA 94720-7320
United States

HOME PAGE: http://gspp.berkeley.edu/directories/faculty/solomon-hsiang

National Bureau of Economic Research ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Amir Jina

Harris Public Policy, University of Chicago ( email )

1155 East 60th Street
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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