Graduate Thesis Or Dissertation
 

An Empirical Analysis of the Impact of Climate-related Disasters on the Regional Economy

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https://ir.library.oregonstate.edu/concern/graduate_thesis_or_dissertations/h702qf156

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  • The ongoing climate change has impacted the lives and livelihoods of people. A climate-related disaster acts as an exogenous shock to the economy that can have lingering effects over a larger region even if all the locations are not directly affected. Climate-related disasters do not follow the administrative boundaries. So, often we see that a particular disaster event leaves its marks on a region that straddles multiple administrative boundaries. The effect of any disaster depends on the type, frequency, extent, and intensity of the disaster as well as on the adaptation of people. Moreover, households and firms can change locations to overcome the losses. The mobility of workers and firms across locations propagates the shock to other places that are not directly affected by the disaster. Therefore, the inter-connectivity of local economies is an important channel to dissipate the disaster impact to a larger region and thus an important aspect of disaster impact on the local labor market. This study focuses on two different aspects of climate-related disasters and their impact on regional well-being. First, the effects of different types of disasters on the local labor market are investigated and the results show that the conventional demand-supply analysis can be used to explain the underlying causes for the labor market outcome. The recent literature on climate-related disasters has focused on mainly one type of disaster at a given point in time or during a specific period. The focus has been primarily on the big disasters due to the catastrophic effect on the local and national economies. However, considering the variations in the methods, variables, study periods, locations, and disaster types, it is difficult to compare the findings to draw a conclusion on the underlying factors that cause the outcome. Also, many a time the disaster is treated as an event that has affected only one state or one region without considering the outcome of the neighboring locations. Therefore, using the Spatial Durbin Error Model (SDEM) and Principal Component Analysis (PCA), it is shown that the standard labor demand and supply analysis has the potential to explain the heterogeneity in labor market impacts of different types of climate-related disasters. Next, the quantitative spatial economics framework is adopted to investigate the effect of hurricanes on the spatial equilibrium distribution of economic activities in eight southern states in the U.S. The recurring damages from climate-related disasters redefine the spatial equilibrium by altering the productivity and amenity and inducing spatial sorting of households and firms within the region. To understand the impact of a climate-related disaster, it is, therefore, important to consider the sorting process and spatial linkage within a spatial equilibrium framework. It is found that the past exposure to hurricanes is associated with positive productivity shock, suggesting hurricanes as a force of constructive destruction in the long run. Moreover, it is also found that frequent hurricane exposure is considered as an adverse amenity, driving people away and pushing up the wage compensation. The adverse amenity effect of hurricanes is dominant over the positive productivity shock, leading to a 0.3 percent reduction in social welfare in the region. However, the equilibrium impact of hurricanes differs across locations depending on the frequent exposure to hurricanes and the size of the county economy. The two chapters take two different approaches to understand the impact of climate-related disasters on the regional economy. The empirical study starts with a partial equilibrium model to understand the effect of labor demand and supply shift on the labor market outcome considering the neighboring spillover and temporal effect. This study covering multiple climate-related disasters is a national-scale labor market impact assessment that allows drawing a comparison between outcomes of different types of disasters. Later, the spatial sorting of households and firms is considered that is an expected behavior to reduce the risks of expected damage over a long period. So, the quantitative spatial economics framework is used that assesses the hurricane impact from a general equilibrium perspective. Literature shows that disasters can have a positive impact on any specific location or industry during the restructuring and rehabilitation phase post-disaster. However, despite the positive effects of disasters on employment in specific cases, the overall well-being of the region may have a detrimental impact. Therefore, the generalization of results from the assessment of a specific industry or location can be misleading. The results from the essays show that the regional outcome along with the location-specific evaluation are equally important and therefore, both should be considered for the disaster management and economic resiliency by the local and national government.
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  • This work was funded by the National Institute of Food and Agriculture (NIFA), Grant Award No: 2017-68006-26233.
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