The Impacts of Tropical Cyclones and Fluvial Floods on Economic Growth – Empirical Evidence on Transmission Channels at Different Levels of Development

Abstract

Already today, at about 1°C of global warming, we observe a regional intensification of extreme weather events. While the short-term economic impacts of these events are well documented, little is known about their impacts on economic growth in the long-term. Using a three-way fixed-effects panel model, an outlier-robust regression, and ``people exposed'' as exogenous predictor, we study the short-, medium-, and long-term impacts of tropical cyclones and fluvial floods on per-capita GDP growth for a set of 158 countries for the period 1971--2010. To understand how the observed impacts depend upon the countries' development level, we divide countries into four groups based on the inequality-adjusted human development index. We further decompose national gross domestic product (GDP) into i) its national income components and ii) its sectoral contributions enabling us to single out income components as well as sectors that are most important for impact transmission. On the global level, weather extremes of both categories have significant negative short-, medium-, and long-term impacts on economic growth; over 15 years, long-term growth losses from severe tropical cyclones accumulate to -6.6% and are about five times larger than growth losses from severe fluvial floods (-1.2%). For both event categories, we find growth losses to depend non-monotonously upon development level challenging the common narrative that development can generally protect against disaster losses. Across all levels of development, investment, international trade are the most important transmission channels. Further, in poor countries growth losses mainly result from declines in agriculture and manufacturing growth. Our results provide guidance and decision support for the implementation of evidence-based coping and adaptation strategies, for instance, for the design of National Adaptation Plans for developing countries.

Keywords: Tropical cyclones, Fluvial floods, Economic growth losses, Level of development, Impact channels, Robust regression

JEL Classification: O44, Q54, F63, C50