Natural Disasters, Weather and Air Pollution: Empirical Evidence and New Perspectives
Friday, Jan. 6, 2017 10:15 AM – 12:15 PM
Swissotel Chicago, Zurich G
- Chair: Matthew Neidell, Columbia University, IZA, and NBER
Do Disasters Affect Growth? A Macro Model-Based Perspective on the Empirical Debate
AbstractA growing literature has sought to quantify the impacts of natural disasters on economic
growth, but has found seemingly contradictory results, ranging from positive to very large
negative effects. This paper brings a novel macroeconomic model-based perspective to
the data. We present a stochastic endogenous growth model where individual regions
face uninsurable cyclone risks to human and entrepreneurial capital, building on the tools
developed in the incomplete markets macroeconomics literature (Krebs, 2003, Angeletos,
2007). Our model can reconcile key divergent results from prior empirical studies, as they
measure different elements of the overall impact of disasters on growth: (1) Higher disaster
risk can increase growth by increasing (precautionary) savings, whereas disaster strikes
induce (potentially persistent) output losses, in line with the empirical evidence of positive
growth effects in cross-sectional analyses (e.g., Skidmore and Toya, 2002) but negative
impacts in panel studies (e.g., Hsiang and Jina, 2015a). We explore a combined two-step
estimation to assess the overall impact of cyclones on growth, which - on average - appears
to lie in between. (2) Competing measures of cyclone risk - average capital destruction,
fatalities, or storm intensity - can be related to growth in opposite ways, again in line
with the literature (e.g., Hsiang and Jina, 2015b vs. Skidmore and Toya, 2002). Intuitively,
long-run growth depends on the level and composition of investments across different assets,
which, in turn, depend differentially on the vector of expected damages to all capital goods.
(3) Finally, we show that disaster risk can have opposite effects on growth and welfare.
Estimating Indirect Environmental Benefits: Fracking, Coal and Air Pollution
AbstractThis paper estimates indirect benefits of improved air quality induced by hydraulic fracturing, or “fracking” in the continental United States. The recent increase in natural gas supply led to displacement of coal-fired electricity by cleaner natural gas-fired generation. Using detailed spatial panel data comprising the near universe air quality monitors merged with US power plants locations, we find that coal generation decreased by 28% and estimate that decrease’s effect on air quality. Using an IV identification strategy we identify a 4% decrease in PM 2.5 levels. These benefits vary a great deal geographically; air pollution levels decreased most in Alabama by 35%. Back of the envelope calculations imply accumulated health benefits of roughly $17 billion annually.
Measuring Climate Damage From Weather
AbstractThis essay develops a theoretical model of the potential damage of both weather and climate. If there is no interaction between weather and climate, the effect of weather will be unrelated to the effect of climate. The model is clear that weather is related to climate only if there is an interaction term between them. Intertemporal panel studies must include interaction terms between weather and climate if they want to measure climate impacts using weather as a proxy. The interaction term, in turn, would require the weather literature to control for missing time invariant variables. It is also important to note that if the underlying model is nonlinear, fixed effects do not completely control for time-invariant variables. Most of the weather panel literature have made this mistake and consequently have not estimated even weather effects correctly.
Columbia University, IZA, and NBER
University of Illinois-Urbana-Champaign
Resources for the Future
University of California-Berkeley
- Q5 - Environmental Economics