How Natural Disasters Affect the Economy

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Table of Contents

Introduction
Natural disasters on macroeconomic variables
Natural disasters and natural resources
Effect of natural disasters on physical capital accrual
Effect of natural disaster on human capital accumulation
Effect of natural disasters on technology
Conclusion
Works Cited

Introduction

In May 2008, a destructive earthquake hit Sichuan Province in China causing an apocalyptic damage. The mountaintops were reduced to valleys, several buildings collapsed throughout the cities, and more than 80,000 people lost their lives. This incident confirms that natural disasters still influence how people live.

Natural disasters are causing countries to lose millions of dollars in destructions as well as thousands of citizens who lose their lives yearly. Undoubtedly, natural disasters directly disrupt the economy either on the long-term basis or just shortly. This disruption may be positive or negative depending on how the relevant authorities handle the issue and subsequent disasters.

The nature of a disaster that a country witnesses also plays a significant role in determining how it affects the nation; for instance, geographical tragedies often have more negative impact than climatic tragedies. Countries have no control over the aftermath of a disaster, but if they have good disaster preparation mechanisms, they can manage the impact. This paper will discuss how natural affect the economy through macroeconomic variables.

Natural disasters on macroeconomic variables

Natural tragedies affect different economic elements that assist in defining how the disasters have affected the economy. These variables include natural resources, physical and human capita accrual, as well as technology. All these variables normally have varied impact on an economy, which implies that the impact of natural tragedies in the end can either be positive or negative (Skidmore and Toya 664-687).

Natural disasters and natural resources

The occurrence of natural disasters has a direct impact on a nation’s natural resources. Tornados among other storms can damage a massive stretch of forest. In 2003, “North Carolina lost $550 million worth of timber following the devastating effects of Hurricane Isabel” (Popp 65).

yclones cause soil erosion that result to soil infertility after topsoil has been removed, which consequently has a detrimental effect on agricultural yields (Benson and Clay 1-34). Though artificial fertilizers can be used in place of the eroded soil, this means an additional expense to the farmer.

The damage of crops as well as loss of livestock after a tragedy can temporarily reduce agricultural yields, hence affecting the supply of primary products and basic commodities in a country. Moreover, tourism that relies on natural features and wonders is likely to be affected. In 2005, The Tropical Storm Delta shattered Tenerife’s main tourist attraction site, a rock popularly referred to as El Dedo de Dios, and since then, Tenerife had struggled with reduced income in the tourism sector (Kim 11-49).

However, natural resources are not always damaged because of natural catastrophes; at times nature gains from disastrous events. For instance, floods bring sediments to flood plains, which increase soil fertility, and thus escalate agricultural yields. Volcanic eruptions provide ash that supplements the soil.

Nonetheless, farmers do not gain instantly from disasters. Tourism can also gain from natural disaster; for instance, Hawaii earns a lot of income from its docile volcanoes, which are key tourist attraction sites (Kim 11-49). Past disasters have also created tourist sites such as the Crater Lake in Oregon that came has a result of a volcanic eruption.

A tragedy that does not cause a tremendous damage to the environment, but brings a permanent benefit to the society may enhance the natural resources of a state. The beneficial effects of natural catastrophes on natural resources always boost the economy of a country on a long-term basis. The impact of natural tragedies on natural resources relies largely on the nature of the country as well as the context under which it occurs. However, its effects are not utterly disastrous.

Effect of natural disasters on physical capital accrual

The accrual of physical capital plays a pivotal role in the growth of an economy. Physical capital enables people to become more productive even in the absence of tools. A realistic measure of physical capital is always necessary in an economy because the growth of an economy depends on the output of every individual. Natural catastrophes destroy physical capital. The alteration in the number of physical capital depends on actions that are taken soon after the disaster has occurred.

Countries often attempt to reconstruct the physical capital. However, challenges like bureaucratic hurdles, dishonesty, as well as truncated rates of insurance can prevent or lower the momentum of rebuilding physical capital. If nations rebuild physical capital, tragedies have a positive impact on its accumulation; however, if the institutions responsible for managing the disasters are ineffective, the physical capital accrual may decrease (Skidmore and Toya 664-687).

Pragmatic evidence reveals that the outcome of catastrophes on physical capital is negative in case there is an association between the two. However, the relationship between the two is normally weak because of the presence of human capital accumulation (Kim 11-49). The escalation of human capital accrual after a natural catastrophe may raise physical capital. Eventually, these events may lead to a rise in physical capital accrual.

Effect of natural disaster on human capital accumulation

The accrual of human capital is usually beneficial to the economy. In case the technology used in the physical capital is complicated, it is wise to invest in the human capital since it normally results to higher output. Natural disasters reduce human capital accrual in numerous ways. When a natural disaster causes an extensive demise of workers, it minimizes the rate of human capital accumulation, and eventually derails economic growth.

However, cautioning people who reside in areas vulnerable to disaster can manage this aspect (Skidmore and Toya 664-687). Another way that natural catastrophes alter human capital accrual is through damaging education structures. If universities and colleges are toppled by natural tragedies, the country will lose potential people who would have improved the labor force. Furthermore, if the government is unable to rebuild the destroyed structures, then the effect becomes austere.

Disasters that have ascetic negative impact on the economy can also lower the labor force in subsequent years because underprivileged families may be forced to stop educating their children who could probably have been productive in providing labor. Human capital directly affects economic growth; therefore, reduction in the labor force supply affects the speed of economic development negatively (Kim 11-49).

Effect of natural disasters on technology

A country with good technology with adequate physical capital increases productivity given that the labor force can handle the novel technology. The economy improves as the rate of productivity increases. The outcomes of natural disasters normally include the damage of physical capital as well as infrastructure (Kim 11-49).

The government can take advantage of the destruction and use it as an opportunity to reconstruct the country using the latest technology. Approximating the degree of technology used in an economy is a challenging exertion, which is examined by determining the association between the natural tragedies and total factor productivity. This element measures the output of work as well as capital, and thus estimates the degree of technology.

Using this method, it is evident that natural disasters improve the state of technology in a nation. However, for a natural disaster to cause the improvement of technology, the government must be able and willing to supplant the capital that was lost when the catastrophe occurred (Skidmore and Toya 664-687).

Nonetheless, disasters such as droughts have no impact on the macroeconomic variables. They do not damage physical capital and hence, cannot alter the level of technology in an economy. In industrialized countries, droughts rarely threaten the lives of the citizens. Droughts mainly affect agriculture due to lack of water, but established nations can handle its initial stages.

However, in developing countries, the impact of drought is drastic since the majority of such countries rely on agriculture. The growth of the economy in poor nations is derailed because of their reliance in agriculture. Drought causes famine, which eventually brings significant alterations in the economy (Kim 11-49).

Conclusion

Natural disasters unquestionably affect the economy both positively and negatively. Though the negative effects can be felt immediately, its positive impacts are on a long-term basis.

For instance, apart from the detrimental effect of Sichuan earthquake, Chinese government asserted that the earthquake had stirred economic growth through the massive reconstruction initiatives. It is evident that natural tragedies can also benefit a country, but its negative effects are more drastic. Therefore, every country should create institutions and enact policies that can help in managing natural disasters.

Works Cited

Benson, Charlotte, and Edward Clay. “Understanding the Economic and Financial Impacts of Natural Disasters.” Disaster Risk Management Series 4.4 (2004): 1-134. Print.

Kim, Chul-Kyu. “The Effects of Natural Disasters on Long-Run Economic Growth.” Michigan Journal of Business 4.1 (2011): 11-49. Print.

Popp, Aaron. The effects of Natural disasters on long run growth, 2006. Web.

Skidmore, Mark, and Hideki Toya. “Do Natural Disasters Promote Long-Run Growth?” Economic Inquiry 40.4 (2002): 664-687. Print.

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