Natural Disasters, Public Spending, and Creative Destruction: A Case Study of the Philippines

30 Pages Posted: 16 Jul 2018

See all articles by Shikha Jha

Shikha Jha

Asian Development Bank

Arturo Martinez, Jr.

Asian Development Bank

Pilipinas Quising

Asian Development Bank - Economic Research

Zemma Ardaniel

Asian Development Bank Institute

Limin Wang

World Bank - Research Department

Date Written: March 2018

Abstract

Typhoons, floods, and other weather-related shocks can inflict suffering on local populations and create life-threatening conditions for the poor. Yet, natural disasters also present a development opportunity to upgrade capital stock, adopt new technologies, enhance the risk-resiliency of existing systems, and raise standards of living. This is akin to the “creative destruction” hypothesis coined by economist Joseph Schumpeter in 1943 to describe the process where innovation, learning, and growth promote advanced technologies as conventional technologies become outmoded. To test the hypothesis in the context of natural disasters, this paper takes the case of the Philippines—among the most vulnerable countries in the world to such disasters, especially typhoons. Using synthetic panel data regressions, the paper shows that typhoon-affected households are more likely to fall into lower income levels, although disasters can also promote economic growth. Augmenting the household data with municipal fiscal data, the analysis shows some evidence of the creative destruction effect: Municipal governments in the Philippines helped mitigate the poverty impact by allocating more fiscal resources to build local resilience while also utilizing additional funds poured in by the national government for rehabilitation and reconstruction.

Keywords: natural disasters, typhoons, poverty, household income mobility, development opportunity, foreign aid, fiscal transfers, municipalities, public spending, creative destruction, Asia, Philippines

JEL Classification: H72, H75, H76, O53, Q54, R11

Suggested Citation

Jha, Shikha and Martinez, Jr., Arturo and Quising, Pilipinas and Ardaniel, Zemma and Wang, Limin, Natural Disasters, Public Spending, and Creative Destruction: A Case Study of the Philippines (March 2018). ADBI Working Paper 817. Available at SSRN: https://ssrn.com/abstract=3204166 or http://dx.doi.org/10.2139/ssrn.3204166

Shikha Jha (Contact Author)

Asian Development Bank ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

Arturo Martinez, Jr.

Asian Development Bank ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

Pilipinas Quising

Asian Development Bank - Economic Research ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

Zemma Ardaniel

Asian Development Bank Institute ( email )

Kasumigaseki Building 8F 3-2-5
Kasumigaseki, Chiyoda-ku
Tokyo, 100-6008
Japan

Limin Wang

World Bank - Research Department ( email )

1818 H Street, N.W.
Washington, DC 20433
United States
202-473-7596 (Phone)
202-522-1735 (Fax)

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