Question

Evaluate 3 positive effects of Natural Disasters

Answer 1

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It has been suggested that disasters might have positive economic consequences, through the accelerated replacement of capital. This possibility is referred to as the productivity effect. This effect is investigated using a model with embodied technical change.

In this framework, disasters can influence the production level but cannot influence the growth rate, in the same way than the saving ratio in a Solow-like model. Depending on reconstruction quality, indeed, accounting for embodied technical change can either decrease or increase disaster costs, but is never able to turn disasters into positive events.

Moreover, a better but slower reconstruction amplifies the short-term consequences of disasters, but pays off over the long-term. Regardless, the productivity effect cannot prevent the existence of a bifurcation when disaster damages exceed the reconstruction capacity, potentially leading to poverty traps......