What are the True Costs of Natural Disasters?

With a year that included severe monsoon flooding in Bangladesh, earthquakes in Mexico, and hurricanes in the Atlantic and Pacific Oceans, 2017 was an exceptionally bad year for natural disasters. Policies can help mitigate these tragedies, but to start we must better understand a disaster’s true costs. Conventional metrics consider lives lost and the value of destroyed infrastructure but leave many questions unanswered. How, for example, does experiencing a natural disaster impact an individual in the long-term? Are these impacts passed on to the next generation? Do different types of disasters have different long-term impacts?

A recent article by Germán D. Caruso in the Journal of Development Economics sheds light on these questions. The study uses national census data and natural disaster databases to investigate long-run and intergenerational impacts of every natural disaster to hit Latin America in the 20^th century. Caruso compares long-term outcomes for people who lived through different disasters, including people living in different places of the country but in the same timeframe, people living in the same area but in different timeframes, and people living in different places in different timeframes. He measures outcomes such as years of education, disability, unemployment, and wealth. Caruso uses a similar model to examine these outcomes in the children of those impacted by a disaster.

Caruso found that natural disasters impact educational outcomes, but that the correlation between these impacts and a country’s level of development is nonlinear. Both low and high GDP per capita countries are less affected than countries in the middle of the per capita GDP distribution, perhaps because these mid-range countries are wealthy enough to accumulate human capital but do not have resilient infrastructure. Furthermore, Caruso found that unpredictable natural disasters, such as landslides and floods, had the largest impact on education and that the youngest children were the most vulnerable. The educational impacts are especially significant when those affected are mothers. An individual in utero impacted by a flood, for example, had 0.472 fewer years of education than an unexposed child.

The study also found that an individual was more likely to have a long-term disability if they were exposed to a natural disaster, especially if exposure occurred within the first eight years of life. More destructive disasters have the largest impacts; cyclones, for example, increase the probability of a disability. In addition, natural disaster exposure increases the probability of long-term unemployment, especially when the individual is exposed while in utero or of school age.

To measure an outcome as diverse and subjective as wealth, Caruso created a wealth index using census information, including rooms per capita, home ownership, and access to running water. He found that earthquakes and volcanoes had the largest effect, and that natural disasters most impacted the long-term wealth of exposed individuals if they later became heads of their households.

There are several important lessons that policymakers can draw from this research. First, different types of disasters lead to different, individualized outcomes and that these impacts depend on several factors, including an individual’s age at the time of exposure. Countries need more than just general disaster prevention and response plans, and alleviation policies should focus first on pregnant women, children in their first years of life, and school-aged children, depending on the disaster. Policymakers should also note that disasters affect countries differently depending on their levels of development. Given that predictability of a disaster seems to play a role in its impact, countries should invest in early warning systems. Most of all, cost-benefit evaluations of these policies should consider hidden costs of long-term and intergenerational transmission of impacts, especially if those exposed are women and children.

Article source: Caruso, Germán D. “The legacy of natural disasters: The intergenerational impact of 100 years of disasters in Latin America.” Journal of Development Economics No. 127 (2017): 209-233.

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