Natural disasters stimulate the economy! This is how it does-
Natural Disasters lead to destruction of property, to rebuild which the government spends millions or billions of dollars and use new resources and technologies. hence disasters lead to
- increased cash flow in the economy
- greater innovation.
Truck loads of money a government will pump into the economy after a natural disaster will increase the cash flow and strengthen the purchasing power of the society. Which will lead to more saving and investment, hence more growth. This is even applicable to poorer economies nowadays, because we can see that just after a disaster money in really large numbers flow in from outside. Take the case of 2010 Haiti earthquake that took the life of 316,000 people. The nation with a GDP of just $11.18 billion had $12 billion donated by rest of the world for Disaster relief and rebuilding.
But this method could fire back if an economy is having high inflation rate as more cash flow would intensify the inflation. Obviously Inflation beyond a level harms the growth. But firing back usually will not happen because the natural disaster would have already bought the inflation to a pretty low level due to large scale destruction of property and assets which include factories and other employment providing facilities.
Naturally when disaster affected infrastructure is replaced by new infrastructure, the latter is much sleeker and productive compared to the former, hence greater productive economy which leads to higher GDP, hence greater growth! The newly introduced infrastructure and technologies most probably consume less energy and space which is an added advantage.
Lets consider some cases
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| Ruins of Sichuan earthquake 2008 |
1) On May 18, 2008, an earthquake shook the Sichuan Province in southwest China. Measuring 8.0 on the Richter scale, it was the most devastating earthquake since the 1976 Tangshan earthquake. The quake took at least 70,000 lives, left millions homeless, and quite considerably more jobless. Over 100 square kilometers of infrastructure were either seriously damaged or destroyed. The mountain tops sheared into valleys, cities were reduced into rubble and dust, dams were cracked, bridges were collapsed. And if we can believe the Chinese government this major disaster resulted in a 0.3% hike in China's growth.
2)Asia is the worlds most natural disaster hit and vulnerable continent. And yes it is the economically fastest growing continent too.
3) Studies have shown that earthquakes in California and Alaska has helped stir economic activity there.
Natural disasters do help the nation gain economic growth! But take into consideration these following aspects too
1) Natural disasters help the nation gain long term economic growth. Growth decreases till new infrastructure is built then increases
2) All natural disasters except drought help the nation gain economic growth. Meanwhile earthquakes, volcanic eruptions, hurricanes, flood and ice storm boost the economy like no other due to the widespread destruction it causes.
3) Economic growth due to natural disasters may not benefit the poorest and the worst affected.
4) Disasters result in loss of lives and property as well as traditional wisdom and knowledge, making affected communities more vulnerable.
5)Nothing in this world can replace a human life. What i have discussed here is just economic after effects of natural disasters. Disasters should NOT at any cost be seen as an opportunity to gain economic growth. Peace.
References :
http://internationalbusiness.wikia.com
http://online.wsj.com
http://www.huffingtonpost.com
