As climate change increases the intensity and (possibly) the frequency of major coastal storms, what will be the economic consequences?
Answering this question requires two big pieces of information: the economic consequences of such storms (typhoons, hurricanes, and tropical cyclones) and the patterns of those storms in the years ahead. As it turns out, it's that first bit—the economic consequences of storms—that was difficult to pin down.
For years economists have debated whether destructive storms are even bad for a country's economy. To a non-economist, the ill effects of a storm might seem intuitive, but economists have a knack for finding plausible counterintuitive explanations. When it comes to a major natural disaster, they had four competing hypotheses: Such a disaster might permanently set a country back; it might temporarily derail growth only to get back on course down the road; it might lead to even greater growth, as new investment pours in to replace destroyed assets; or, possibly, it might yet even better, not only stimulating growth but also ridding the country of whatever outdated infrastructure was holding it back. Woohoo.
Interesting theories, but time to test them out against some empirical data. And that's what economists Solomon M. Hsiang of Berkeley and Amir S. Jina of Columbia set out to do in a paper released this week.