The Paradox of: Natural disasters & Economic Growth
Introduction
As we receive news of an earthquake, flood or any natural disaster it is usually followed by magnificent losses in humans and capital. The numbers of the losses quantify for us the damage that such natural disaster might create. From these numbers, we are likely to assume an immense cost to the affected country and some time for rebuilding. Yet, the possibility of regaining the 'normal' status is questionable. Although natural disasters cause a great deal of damage, disasters are also more likely to promote growth rather than retard it. The purpose is to examine the paradox of how natural disasters can lead to economic growth using the Wenchuan earthquake in China on May 12, 2008 as a case and try to predict the economic output of it .
Question 1: What are the top 10 populations most exposed to natural disasters?
  • Natural Disasters (hurricanes, tropical storms, tornadoes) are becoming more frequent and more powerful. The number of recorded natural disasters and extreme weather conditions have risen. Storms and flooding accounted for 80% of the reported 3,496 disasters.
  • There is also growing evidence that the power of hurricanes is increasing, due to the warmer temperatures. Five of the worst storms in U.S. history have caused a total of 294 BN USD in damages. Katrina in 2005, Sandy in 2012, Andrew in 1992, Ike in 2008 and Ivan in 2004. 
  • China is one of the countries in the world that suffer the most from natural disasters. Along with global climate changes and its own economic takeoffand progress in urbanization, China suffers increasing pressure on resources, environment and ecology. The situation in the prevention of and response to natural disasters has become more serious and complicated.

Question 2: What are the impacts of natural disasters on their economy through the case of Wenchaun earthquake in China?
  • The Wenchuan earthquake struck China on May 12, 2008 with a strength of 8.0 on the Richter scale. Its strength and deadly impact made it one of the most disastrous earthquakes in the world. The earthquake epicenter was located in Yingxiu in Wenchuan County, Sichuan province.
  • The Wenchuan earthquake struck China on May 12, 2008 with a strength of 8.0 on the Richter scale. Its strength and deadly impact made it one of the most disastrous earthquakes in the world. The earthquake epicenter was located in Yingxiu in Wenchuan County, Sichuan province.
  • The direct economic loss from the earthquake was more than 125.7 BN USD, most of it due to loss of infrastructure and buildings. It is estimated that around 1.2 million people had lost their jobs.



 

Question 3: What is the secret behind China's economic growth and success?
  • As soon as the immediate post-earthquake emergency had passed, the Government started planning longer-term post-disaster reconstruction. The Plan stated that the main priority was to:
    • Reconstruct residential houses and public facilities within a period of three years,
    • Encourage local authorities to consider the reconstruction process as a development opportunity,
    • Contribute to existing strategies of economic and rural development.
  • The Plan underlined that such processes should be conducted in an environmentally friendly manner, with strict protection of farmland. 157 BN USD were allocated in the Plan for restoration work in the 51 countries classified as seriously and very seriously affected in the provinces of Sichuan, Gansu and Shanxi.
 
Learned lessons from China's Experience in the Wenchuan Earthquake:
  • China faces increasingly complex natural situations for disaster management, but has insufficient experience both for creating appropriate institutions and for capacity building.
  • China is using a  stronger government role to take the  leadership in dealing with disasters , together with a multiple approach and more participation from all fields. The chain of governance can lead to improved efficiency, or to the opposite.
  • China is  confident that it can  create effective cooperation , for disaster management both at home and abroad, while keeping developments in line with the interests of both China and the bordering states.
  • China is  improving its abilities in  disaster management together with its domestic comprehensive and  sustainable growth , including  political, social, cultural, economic and conceptual changes . Moreover, China is now  focusing on the  impact assessment of climate change and  environmental degradation in relation to disasters , and not simply on the issue of disaster management only.
Question 4: Can natural disasters help stimulate the economic growth or not?

  • In the short term, disasters have a negative impact on output, income, and employment. Measured by GDP, recovery spending may lead to higher output and employment after a period of time. This positive effect is an illusion because GDP typically does not account for all the economic losses from the disaster, notably loss of capital.
  • In the short term, disasters have a negative impact on output, income, and employment. Measured by GDP, recovery spending may lead to higher output and employment after a period of time. This positive effect is an illusion because GDP typically does not account for all the economic losses from the disaster, notably loss of capital.
  • At the top of the list is the United States of America, has been at the head of the table going all the way back to 1871. However, as has been the case for a good few years now, China is gaining on the U.S., with some even claiming that China has already overtaken the U.S. as the world's Number 1 economy. 
  • The Chinese economy experienced astonishing growth in the last few decades to become the world's second largest economy, which has grown from 11 to 15%, and has accounted for 30% of the world's economic growth. The country is ranked the 2nd in nominal GDP with 13.093 TR USD.
  • China has become the world's manufacturing hub. In recent years, China's modernization propelled the tertiary sector. In 2013, it became the largest category of GDP with a share of 46.1%. Now, China's economy focuses on the need for quality over quantity, to shift away from being a leading manufacturer merely by volume towards being a leading producer of higher quality goods and  services.
Conclusion
On the average it seems as though a natural disaster will lead to a GDP growth, both in the short and in the long-term and the Touhoku earthquake should be no exception to that, similar to China's case.  Japan is no stranger to natural disasters and was financially prepared for this disaster. Now, Japan is ranked the 3 rd in nominal GDP with 4.999 TR USD. By consequence, countries that suffer frequent natural disasters have a higher  GDP growth than countries that do not. These countries do not only pay attention to the immediate recovery of the economy, but also they focused on targeting their investments into physical capital and quality of human resources that will result into long term growth. In conclusion, we find that natural disasters can definitely lead to economic growth and that the paradox is achievable through China's case as a proof on how setting a social, economic and environmental post-disaster reconstruction strategy will most probably lead to an economic development.
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