EARTHQUAKES A

ND

ECONOMICS

TH

E U

NE

XP

EC

TE

D E

FF

EC

TS

OF

DI S

AS

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DY

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N H

AB

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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.