Medium‐Term growth effects of Disasters‐Empirical analysis based on provincial panel data in China

• Published date: 01 March 2022
• Author: Jing Guo,Wei Liu,Qiping Sun,Yiqun Zhou,Yonggang Wu
• Date: 01 March 2022
• DOI: http://doi.org/10.1111/asej.12262

Medium-Term growth effects of

Disasters-Empirical analysis based

on provincial panel data in China

Jing Guo,

1

Wei Liu,

2

Qiping Sun,

3

Yiqun Zhou

4

and

Yonggang Wu

5

Received 15 December 2020; Revised 11 October 2021; Accepted 30 October 2021

Based on a panel of 31 provinces and cities from 1990 to 2019, we first conduct

an empirical analysis using the maximum likelihood (ML) procedure to examine

the effects of various disas ters (i.e. droughts, floods, earthquakes, storms,

typhoons and low and freezing temperatures) on the medium-term economic

growth of China and its three economic regions (i.e. the eastern, central and

western regions). We identi fy the transmission ch annels through which the se

disasters affect economic growth by investigating the medium- term relationships

among disasters, capital accumulation, human capital accumulation and total

factor productivity. The interp rovincial empirical analysis de monstrates that the

effects differ across the econo mic regions. Thus, disast ers affect economic

growth through different channels but mainly through capital stock. Further

research indicates tha t the growth effect of disasters large ly benefits from

Chinese government expendi tures on disaster relief.

Keywords: economic growth, maximum likelihood, natural disaster, transmission

channels.

doi: 10.1111/asej.12262

I. Introduction

China is among the few countries in the world that are highly vulnerable to

disasters due to its unique geoclimatic conditions. In recent years (Between

1990 and 2020), a significant increase in the frequency and intensity of disasters

has resulted in considerable loss of human life and destruction of physical

capital. According to statistics, from 1990 to 2019, China’s disasters caused an

average annual direct economic loss of RMB 292.85 billion and 63.11 million

*Guo (corresponding author): School of Economics, Tianjin University of Commerce, Tianjin,

China. Email: gjsqpxx@126.com. Liu: School of Finance, Nankai University, Tianjin, China. Sun:

North China Petroleum Engineering Construction Co., Ltd., Renqiu, China. Zhou: Beijing Institute

of Graphic Communication School of Economics and Management, Beijing, China. Wu: School of

Accounting, Tianjin University of Commerce, Tianjin, China. We thank The National Social Science

Fund of China (20BJY240) for financial support

© 2022 East Asian Economic Association and John Wiley & Sons Australia, Ltd.

Asian Economic Journal 2022, Vol.36 No. 1, 47–71 47

deaths, with 348.416 million people and 39.983 million hectares affected.

1

In

the first three quarters of 2020, a total of 130 million people were affected by

various disasters in China; the month of June 2020 was particularly devastating.

Severe floods have occurred in the Yangtze River, Huaihe River and Taihu Lake

basins in China, which caused 63.46 million people to suffer, and the direct eco-

nomic loss was 178.96 billion yuan, 12.7% and 15.5% more than the average

value of the previous five years respectively.

2

Due to the rapid development of China’s economy and accelerating urbaniza-

tion, the pressure on resources, the environment and ecosystems is increasing.

Determining how to effectively reduce disaster risk and realize high-quality eco-

nomic development in China is imperative. Research on the effects of disasters

on economic growth and the corresponding transmission channels not only has

a certain practical guiding significance for understanding the potential risks of

disasters and formulating targeted disaster prevention and mitigation strategies

in China but can also be applied in analyses at the interprovincial level in other

countries, which is a useful supplement to the existing research.

II. Review of the literature

Most of the existing empirical evidence concerns the short-term effects of disas-

ters and tends to demonstrate that disasters have negative short-term growth

effects. For instance, L

opez et al. (2016) consider all reported significant

climate-related disasters during the period 1970–2013 in 184 countries, observ-

ing that the reduction in human capital caused by such disasters has significant

negative effects on the economic growth rate. In contrast, many other studies

find no effect or at times even a positive effect. Raddatz (2007), employing a

vector autoregression (VAR) model and a sample of 40 countries using data

from the Emergency Events Database (EM-DAT) for the period 1965 through

1997, indicates that disasters account for only a small percentage of the volatil-

ity of these countries’real GDP. Klomp and Valckx (2014) use a meta-analysis

to draw the same conclusion. However, models based on Schumpeter’s creative

destruction theory may even predict higher growth rates as a result of disasters

because these shocks can provide the impetus to update the capital stock and

adopt new technologies (Loayza et al., 2012; Cavallo et al., 2013; Sangkhaphan

and Shu, 2020). Moreover, countries with higher levels of economic develop-

ment and better educational attainment, greater trade openness and more effec-

tive ex ante disaster risk-financing mechanisms find it easier to absorb the

economic shocks of disasters because they can provide implicit insurance

1

The data for 1990-2018 are from the China Civil Affairs Statistical Yearbook, and the data for 2019

come from the website of the Ministry of Emergency Management of t he People’s Republic of China.

2

The data are from the website of the Ministry of Emergency Management of the People’s Repub-

lic of China.

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