2020-34 | July 2022
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The Local Economic Impact of Natural Disasters
We use county data from 1980 to 2017 to study the dynamic responses of local economies after natural disasters in the U.S. Specifically, we estimate disaster impulse response functions for personal income per capita and a broad range of other economic outcomes, using a panel version of the local projections estimator. In contrast to some recent cross-country studies, we find that disasters increase total and per capita personal income over the longer run (as of 8 years out). The effect is driven initially largely by a temporary employment boost and in the longer run by an increase in average weekly wages. We then assess the heterogeneity of disaster impacts across several dimensions. We find that the longer-run increase in income per capita is largest for the most damaging disasters. Hurricanes and tornados yield longer run increases in income, while floods do not. The longer run increase in income, which on average has fallen over time, is larger for counties with recent disaster experience. Finally, state-level analyses and estimates of spatial spillovers suggest that, unlike the positive effect for counties directly affected by disasters, the longer run effect of disasters for broad regions as a whole may be negative.
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Roth Tran, Brigitte, and Daniel Wilson. 2020. "The Local Economic Impact of Natural Disasters," Federal Reserve Bank of San Francisco Working Paper 2020-34. Available at https://doi.org/10.24148/wp2020-34