Academic journal article Journal of Economic Development

A Robust Analysis of the Relationship between Natural Disasters, Electricity and Economic Growth in 41 Countries

Academic journal article Journal of Economic Development

A Robust Analysis of the Relationship between Natural Disasters, Electricity and Economic Growth in 41 Countries

Article excerpt

(ProQuest: ... denotes formulae omitted.)

1. INTRODUCTION

Natural disasters are now better known. They are well investigated and mapped both locally and global scale. Natural disasters are liable to cause serious economic and social disruption. The immediate damage is decrease production, expenditures and the number of hours worked. According to the data reported by EM-DAT, Americas suffered in 2014 from 76 natural disasters and the damage reached US$ 25.8 billion. On the other side, Africa suffered from 39 natural disasters, a number far below its 2004-2013 annual average. According to EM-DAT (2014), the damages from natural disasters in European countries represent approximately US$ 7.8 billion.

The occurrence of natural disasters such as earthquakes, hurricanes, tornadoes, floods, storms and volcanic eruptions have negative effects on the electrical system operation. The earthquakes that have hit several countries such as China, Italy, Japan and the United States have severe impact economic, environmental and human. In addition, they destroyed their power system equipment.

The response of the authorities has led in practice by the implementation of prevention and risk management systems evolving since the 1980s, resulting in an abundance of tools and acronyms that thwarts their ownership all players. In the period immediately following the event, reconstruction efforts are offset these losses and, paradoxically, create a net stimulatory effect on economic growth. To achieve this objective, it is necessary to measure or estimate economic costs of such disasters. In this sense, many studies have examined the debate in a macro-economic perspective by exploring how disasters affect real GDP per capita.

In general, economic effects due to disasters can be classified into two categories: direct damage and indirect damage. The main findings shown that the direct effects of natural disasters depend on the level of development of the affected countries (Kahn, 2005).Most empirical studies have shown that natural disasters have a negative indirect damage in short-term, such as effects on economic growth (Noy, 2009; Fomby et al., 2013). Although long-term studies are still relatively rare and yet failed to provide consistent results (Skidmore and Toya, 2002; Noy and Nualsri, 2007; Jaramillo, 2009.).

The contribution of this article is to assess the effects of natural disaster on economic growth, physical capital, labor and electricity. Furthermore, our study of literature suggests that few studies have examined the impact of natural disaster on the electricity. For this purpose, we use a Panel data and Granger causality-VECM model, including four types of disasters (earthquakes, storms, floods and droughts) in about 41 countries over the period 1990 to 2014.

The sections of this paper presented as follows. The literature review section presents a brief literature review. The data section details the data used in the empirical part. The descriptive statistics and correlation matrix section summarizes the key statistics and correlation of the total variables. The model specification section describes the econometric method. The estimation methods and empirical results section discusses the empirical findings. Finally, conclusion and policy implications section.

2. REVIEW OF THE RELEVANT LITERATURE

2.1.Natural Disaster and Economic Growth

There is a considerable attention in literature about the impact of natural disaster on economic growth. For instance, Albala-Bertrand (1993) investigated the effects of natural disaster on the economy and society in developing countries. He concluded that in reality disasters do not represent a problem for development. Benson (1997a, b, and c), Benson and Clay (1998, 2001) evaluated the impact of natural disasters on economic growth in some countries such as Fiji, Vietnam, Philippines, and Dominica. The findings showed that disasters shocks have a severe negative short-run economic consequence, with increase of property, and worsening inequalities. …

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