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EARTHQUAKES A
ND
ECONOMICS
TH
E U
NE
XP
EC
TE
D E
FF
EC
TS
OF
DI S
AS
TE
R –
DY
LA
N H
AB
ER
PRESEN
TATI
ON OVER
VIEW
- 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
P R O S
Easy to measure
Globally used
Proxy for social welfare
C O N S
No black market
Negative externalities
Non-market activities
Doesn’t measure distribution
Doesn’t account for welfare loss
BROKEN WINDOW FALLACY
BROKEN WINDOW FALLACY
M R . B R E A K E R
Destroys Window
Calls Mr. Fixer
Loses disposable income
M R . F I X E R
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 E
ARTHQUAKE
2011
EFFECTS- Estimated cost of rebuilding of $122B
- Immediately negative for growth but positive over the medium-term
- Took 0.2-0.3% off GDP
- Damage to export infrastructure and industrial production caused lull
- Boost in 4th 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
EART
HQUAKES
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
C A N B E N E F I T
- Construction- Healthcare- Utilities
I M P A C T E D N E G A T I V E LY
- 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 E
ARTHQUAKE
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. 2014
"HDI Surprisingly Similar to GDP/capita." Gapminder. N.p., n.d. Web. 02 Apr. 2014.
"Limitations of GDP Statistics." Economics Online. N.p., n.d. Web. 04 Apr. 2014.
"March 11th tsunami a record 40.5 metres high NHK". .nhk.or.jp. 13 August 2011. Archived from the original
on 28 July 2011. Retrieved 7 September 2011. Arnold, Michael. "Earthquake to Hit GDP in Short Term." The Wall Street Journal. Dow Jones & Company, n.d.
Web. 02 Apr. 2014.
"Impact of Japan's Earthquake." US Economy. N.p., n.d. Web. 03 Apr. 2014.
"Canterbury Earthquakes." New Zealand Parliament. N.p., n.d. Web. 07 Apr. 2014.
"Christchurch Earthquake Will See Long-term GDP Rise." The New Zealand Herald. N.p., n.d. Web. 05 Apr.
2014
"Haiti Earthquake 2010." - Economic Impact of the Earthquake. N.p., n.d. Web. 06 Apr. 2014
Andres R. Martinez and Lori Rothman - January 14, 2010 19:07 EST. "Haiti Earthquake to Cost Economy at
Least 15% of GDP (Update2)." Bloomberg.com. Bloomberg, 14 Jan. 2010. Web. 04 Apr. 2014.