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Author: Cañaveral, Patricia lynn P. × Subject: economic growth ×

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    Can natural disasters be good for the economy?
    (2017) Cañaveral, Patricia lynn P.; Rix, Mayumi Katrina B. ; Pajaron, Marjorie C.
    This paper explores the possibility that natural disasters bring a positive impact on regional economic growth in the Philippines under certain conditions, as described by Schumpeter’s theory of creative destruction or the paradoxical idea that destruction of old capital results in the creation of new ones, which leads to economic growth. Using regional data on the occurrence, severity, and amount of damages brought about by tropical cyclones from 2002 to 2015, we examine how such exogenous shocks affect changes in regional aggregate output, expenditures, and gross value added of the three major sectors of the economy. Using Ordinary Least Squares (OLS), Random Effects (RE) and Fixed Effects (FE), Two-Step Heckman Selection, and Propensity Score Matching (PSM), our results reveal a positive relationship between natural disasters, conditional on damages, which are considered as the main driver of creative destruction, and regional economic growth in the Philippines. OLS, FE, and RE panel regressions indicate that tropical cyclones that result in damages are positively correlated with regional economic growth. The Two-Step Heckman Selection models show that regional geography variables, such as location and land area, must be taken into account to correct for selection bias in regions that experience damages while the PSM results indicate that regions that experience at least three damaging tropical cyclones in a year register greater regional economic growth relative to those that do not. The key finding of this thesis, which suggests that the more damaging a typhoon is the higher the regional economic growth in the short run, does not downplay the huge negative impact of natural disasters on properties, income, and human capital. Our thesis merely provides another perspective about the impact of natural disasters albeit controversial.