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Earthquakes and Economics

Explore the relationship between earthquakes and GDP, with a focus on the Broken Window Fallacy. Case studies from the Tohoku, Canterbury, and Haiti earthquakes reveal the long-term impact on GDP and industry sectors.

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Earthquakes and Economics

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  1. Earthquakes and Economics The Unexpected Effects of Disaster – Dylan HAber

  2. Presentation Overview • GDP • Broken Windows Fallacy • Case Example • Conclusion

  3. Gross Domestic Product • Important indicator of economic health • “Value of all finished goods and services produced within a country’s borders in a specific time period” • Calculated in two ways: • Income Approach • Expenditure Approach • GDP/Capita takes into account population

  4. GDP Analysis Pros Cons No black market Negative externalities Non-market activities Doesn’t measure distribution Doesn’t account for welfare loss • Easy to measure • Globally used • Proxy for social welfare

  5. Broken Window Fallacy

  6. Broken Window Fallacy Mr. Breaker Mr. Fixer Paid to fix window Replaces old product No new product created • Destroys Window • Calls Mr. Fixer • Loses disposable income

  7. Overview • GDP and how it’s calculated • Broken Window Fallacy • Case Studies • Conclusion

  8. GDP

  9. HDI

  10. Tohoku Earthquake 2011

  11. Effects • Estimated cost of rebuilding of $122B • Immediately negative for growth but positive over the medium-term • Took 0.2-0.3% off GDP • Damage to export infrastructure and industrial production caused lull • Boost in 4th quarter GDP from construction efforts • Benefitted from high levels of excess capacity

  12. Excess Capacity • Extent to which an economy is operating below the maximum sustainable level of production

  13. Canterbury Earthquakes 2010/2011

  14. Effects • High reconstruction cost of 10% of GDP (Japan was 3%) • NZ noted that damage was still “less than anticipated” • Demand in certain sectors increased • Employment in construction increased 18% • Long-term positive impact on GDP • Timing: global recession left excess capacity in the building sector • GDP shows impact of rebuilding but does not pickup on significant loss of wealth

  15. Industry Effects Can Benefit Impacted Negatively Retail Food Services Travel / Accommodation Financial / Insurance • Construction • Healthcare • Utilities

  16. I Digress… • Researchers at the University of Canterbury found that residents turned to eating unhealthy comfort food following the earthquake

  17. Haiti Earthquake 2010

  18. effects • Rebuilding was estimated to cost at least 15% of GDP • Nominal amount was low (low $Bs) • No infrastructure or institutional support to rebuild • Lack of excess capacity • GDP per capita decreased sharply

  19. Conclusion • Welfare Loss • Immediate decrease in GDP growth for the quarter • GDP increases in subsequent quarters and years • GDP shows impact of the disruption and rebuilding on expenditure and production but not the significant loss of wealth caused by earthquakes • Hurt consumer sentiment • Economic spare capacity and infrastructure is necessary • Anything too great will simply hurt GDP (<20% damage)

  20. Masking the Damage

  21. Sources • "Gross Domestic Product - GDP." Investopedia. N.p., n.d. Web. 06 Apr. 2014 •  "HDI Surprisingly Similar to GDP/capita." Gapminder. N.p., n.d. Web. 02 Apr. 2014. • "Limitations of GDP Statistics." Economics Online. N.p., n.d. Web. 04 Apr. 2014. • "March 11th tsunami a record 40.5 metres high NHK". .nhk.or.jp. 13 August 2011. Archived from the original on 28 July 2011. Retrieved 7 September 2011. • Arnold, Michael. "Earthquake to Hit GDP in Short Term." The Wall Street Journal. Dow Jones & Company, n.d. Web. 02 Apr. 2014. • "Impact of Japan's Earthquake." US Economy. N.p., n.d. Web. 03 Apr. 2014. • "Canterbury Earthquakes." New Zealand Parliament. N.p., n.d. Web. 07 Apr. 2014. • "Christchurch Earthquake Will See Long-term GDP Rise." The New Zealand Herald. N.p., n.d. Web. 05 Apr. 2014 • "Haiti Earthquake 2010." - Economic Impact of the Earthquake. N.p., n.d. Web. 06 Apr. 2014 • Andres R. Martinez and Lori Rothman - January 14, 2010 19:07 EST. "Haiti Earthquake to Cost Economy at Least 15% of GDP (Update2)." Bloomberg.com. Bloomberg, 14 Jan. 2010. Web. 04 Apr. 2014.

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