EARTHQUAKES AND ECONOMICS THE UNEXPECTED EFFECTS OF DISASTER – DYLAN HABER

PRESENTATION OVERVIEW -GDP -Broken Windows Fallacy -Case Example -Conclusion

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

GDP ANALYSIS PROS Easy to measure Globally used Proxy for social welfare CONS No black market Negative externalities Non-market activities Doesn’t measure distribution Doesn’t account for welfare loss

BROKEN WINDOW FALLACY

MR. BREAKER Destroys Window Calls Mr. Fixer Loses disposable income MR. FIXER Paid to fix window Replaces old product No new product created

OVERVIEW -GDP and how it’s calculated -Broken Window Fallacy -Case Studies -Conclusion

GDP

HDI

TOHOKU EARTHQUAKE 2011

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

-Extent to which an economy is operating below the maximum sustainable level of production EXCESS CAPACITY

CANTERBURY EARTHQUAKES 2010/2011

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

INDUSTRY EFFECTS CAN BENEFIT -Construction -Healthcare -Utilities IMPACTED NEGATIVELY -Retail -Food Services -Travel / Accommodation -Financial / Insurance

I DIGRESS… -Researchers at the University of Canterbury found that residents turned to eating unhealthy comfort food following the earthquake

HAITI EARTHQUAKE 2010

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

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)

MASKING THE DAMAGE

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