The Cost of Climate Change: The Intersection of Natural Disasters and Economic Advancement

Abstract

As climate change continues to shape the frequency and intensity of natural disasters, it is crucial to understand its impacts in order to effectively adapt our economy. This paper explores the impact of natural disasters on various economic metrics as well as investigates the mechanism of agriculture in the relationship between natural disasters and rGDP growth. Using Ordinary Least Squares (OLS) fixed effects models to determine the relationship between natural disasters and economic indicators (rGDP per capita growth and unemployment growth), I find significant results for several natural disaster types. The disasters surveyed had varying impacts on rGDP per capita growth, with some yielding positive outcomes (fire, earthquake, and floods) while others had negative consequences (droughts and winter weather). Majority of the resulting statistically significant disasters (fire, tsunami, drought, and wind) were positively correlated with unemployment growth, implying some disaster types are associated with a rise in unemployment. Some disasters reported significant relationships with both rGDP and unemployment, but concrete conclusions could not be drawn due to lack of further context. Employing the same OLS fixed effects models from the previous analysis, I examine the relationship between natural disasters and growth in value added by the agricultural sector. Droughts, winter weather, and heat waves reported statistically significant, negative effects. With this finding, I went on to further examine how this relationship affected rGDP growth by regressing rGDP growth on the fitted values from the value added growth on natural disaster event dummies regression. It was found that this relationship negatively impacted rGDP growth. Overall, the findings of this research suggest that natural disasters have a significant impact on rGDP per capita growth and unemployment growth and rGDP growth through the channel of agriculture.