Economic recovery elusive after natural disasters

June 13, 2017

Illustration of a tornado approaching a home. Image Credit: Nathanael RiegerIllustration of a tornado approaching a home. Image credit: Nathanael RiegerANN ARBOR—Devastation from natural disasters large and small take lives and destroy property, and new research shows they can have lasting negative economic effects on communities.

Big shocks caused by hurricanes such as Katrina and Sandy get most of the headlines, but researchers from the University of Michigan, Princeton University, the University of Southern California and the University of California at Los Angeles, also looked at smaller disasters over nearly a century of data.

Building a data set of the more than 5,000 natural disasters in the United States from 1920 to 2010 using county-level data from the American Red Cross and the Federal Emergency Management Agency, they discovered that it takes a major disaster to push people out of their communities.

“Climate change is expected to increase the number and severity of natural disasters, so it’s important to understand how they affect the economy,” said Paul Rhode, an economics professor at the University of Michigan College of Literature, Science and the Arts and co-author of the study.

Rhode along with Leah Platt Boustan of Princeton, Matthew Kahn of USC and Maria Lucia Yanguas of UCLA, discovered that counties hit by severe disasters experienced greater out-migration, lower home prices and higher poverty rates.

Lower demand to live in an area due to persistent natural disasters leads to falling rents and acts as a poverty magnet, they said. This dynamic is particularly apparent in areas that face high disaster risk or that lack other productivity advantages.

The total number of declared disasters has no effect on local housing prices and rents,
despite encouraging a mild amount of net out-migration. Yet, the occurrence of a super-severe disaster lowers housing prices by 6 percent and rents by 3 percent.

While each declared disaster slightly reduces area poverty, the occurrence of a super-severe disaster increases the local poverty rate by 1.1 percentage points.

“Outflows in response to natural disasters were higher in recent decades, despite the advent of FEMA, perhaps because disaster events have been accelerating over time,” Rhode said.

From 1920 to 1980, about 500 separate county-disaster events took place in a given year. From 1980 to now, there has been a clear rise in disaster counts, reaching around 1,500 county-level events per year by the 2000s.

Disasters are prevalent throughout Florida and on the Gulf of Mexico, an area typically wracked by hurricanes; in New England and along the Atlantic seaboard, locations battered by winter storms; in the Midwest, a tornado-prone region; and along
the Mississippi River, an area subject to recurrent flooding.

There are comparatively few disasters in the West, with the exception of California, which is affected primarily by droughts and fires. The paucity of disaster declarations in the Mountain West suggests that having a disaster declaration is correlated with county population.

The mean county faced two disasters in a typical decade, with floods being the most common type followed by storms and hurricanes. In each decade, one in three counties experienced a severe disaster, defined as 10 or more deaths. And one in 10 counties experienced a super-severe disaster with 100 or more deaths.

When a county had one more disaster that the mean, its out-migration rate rose by 1 percentage point. Volcanos, hurricanes and forest fires spurred the highest migration.
The effect of one super-severe disaster is twice as large as the response to the average disaster.

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