Does the environment have a causal effect on economic development? Using meteorological data, we reconstruct every country’s exposure to the universe of tropical cyclones during 1950-2008. We exploit random within-country year-to-year variation in cyclone strikes to identify the causal effect of environmental disasters on long-run growth. We compare each country’s growth rate to itself in the years immediately before and after exposure, accounting for the distribution of cyclones in preceding years. The data reject hypotheses that disasters stimulate growth or that short-run losses disappear following migrations or transfers of wealth. Instead, we find robust evidence that national incomes decline, relative to their pre-disaster trend, and do not recover within twenty years. Both rich and poor countries exhibit this response, with losses magnified in countries with less historical cyclone experience. Income losses arise from a small but persistent suppression of annual growth rates spread across the fifteen years following disaster, generating large and significant cumulative effects: a 90th percentile event reduces per capita incomes by 7.4% two decades later, effectively undoing 3.7 years of average development. The gradual nature of these losses render them inconspicuous to a casual observer, however simulations indicate that they have dramatic influence over the long-run development of countries that are endowed with regular or continuous exposure to disaster. Linking these results to projections of future cyclone activity, we estimate that under conservative discounting assumptions the present discounted cost of “business as usual” climate change is roughly $9.7 trillion larger than previously thought.
Areas of Focus: Climate Change
, Climate Economics
Climate change is an urgent global challenge. EPIC research is helping to assess its impacts, quantify its costs, and identify an efficient set of policies to reduce emissions and adapt...
, Climate Science
Climate change will affect every sector of the economy, both locally and globally. EPIC research is quantifying these effects to help guide policymakers, businesses, and individuals working to mitigate and...
EPIC’s interdisciplinary team of researchers is contributing to a cross-cutting body of knowledge on the scientific causes of climate change and its social consequences.
, Environmental Health
Producing and using energy damages people’s health and the environment. EPIC research is quantifying the social costs of energy choices and uncovering policies that help protect health while facilitating growth.
Energy and industrial processes introduce toxins into the environment. EPIC research is helping to educate policymakers and consumers on the social and economic costs of this pollution, and the potential...