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How Do Floods Affect the Economy? An Empirical Analysis using Japanese Flood Data

Author

Listed:
  • Takuro Ashizawa

    (Bank of Japan)

  • Nao Sudo

    (Bank of Japan)

  • Hiroki Yamamoto

    (Bank of Japan)

Abstract
The impact of natural disasters caused by increasing-scale climate change on economic activity has been the focus of global attention in recent years. Natural disasters primarily damage the assets owned by firms and households and public infrastructure, i.e., direct effects, but they may also affect the economic activity through the subsequent changes in production inputs, i.e., indirect effects. While there is already a large number of empirical analysis on the indirect effects, however, no consensus has been established not only on the scale and persistence, but even on the signs. In this paper, we estimate the indirect effects of past flood disasters in Japan on the real economy using Prefectural Accounts and Flood Statistics. There are three main findings. First, while floods have a negative effect on the GDP of the prefecture in which they occur, this effect may not persist over the long run as it loses statistical significance after the year following the year of occurrence. Second, floods have different effects across sectors. Floods generally have a negative effect on GDP of the manufacturing and the wholesale and retail sectors, while they tend to have a positive effect on GDP of the construction sector. Third, the magnitude of the indirect effect of floods differs for asset, facility, and equipment that incurs damage. Compared to damage to the assets owned by firms and households, damage to public infrastructure, such as roads, and to public service utilities, such as electric power facilities, tend to depress GDP more significantly, which may indicate the importance of public assets in the spillover effects of flood damage.

Suggested Citation

  • Takuro Ashizawa & Nao Sudo & Hiroki Yamamoto, 2022. "How Do Floods Affect the Economy? An Empirical Analysis using Japanese Flood Data," Bank of Japan Working Paper Series 22-E-6, Bank of Japan.
    • Handle: RePEc:boj:bojwps:wp22e06
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    References listed on IDEAS

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    Cited by:

    1. Yoshihiko Hogen & Yojiro Ito & Kenji Kanai & Naoya Kishi, 2024. "Changes in the Global Economic Landscape and Issues for Japan's Economy," Bank of Japan Working Paper Series 24-E-3, Bank of Japan.

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    More about this item

    Keywords

    Climate Change; Natural Disaster; Physical Risk; Floods;
    All these keywords.

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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