Shaking Up the Equilibrium: Natural Disasters, Economic Activity, and Immigration

Abstract

This paper examines the long-run effects on the spatial distribution of economic activity caused by historical shocks. Using variation in the potential damage intensity of the 1906 San Francisco Earthquake across cities in the American West, we show that more severely affected cities experienced lower population growth relative to less affected cities after the earthquake. This negative effect persisted until the late 20th century. The earthquake diverted migrants to less affected areas in the region, which, together with reinforcing dynamic agglomeration effects from scale economies, left a long-lasting mark on the location of economic activity in the American West.

Keywords: Economic Geography, Location of Economic Activity, Migration, Natural Disasters

JEL Classification: N9, O15, O40, R11, R12