The contradictions of natural disaster and economy

By on November 20, 2012

Natural disasters have always been a subject of debate for their impacts on different areas of life. However, the economic and social aspects have gained maximum attention from analysts may be due to their intimacy with the common masses of a nation. The immediate reaction to any natural disaster is mostly negative. The disasters are most of the times cursed for bringing economic slowdowns owing to their devastating effects. These effects are comprehensive in nature as all the three sectors of economy; the agriculture, manufacturing and services get deeply impacted whenever a natural calamity happens. The length and width of impact however depends on factors like the structure of economy, the kind of disaster, the state of Government reforms and the socio-economic conditions prevailing in the country. But analyzing such disasters with a single-minded approach wouldn’t be fair. So, I am going to contradict this immediate reaction from an economic outlook and throw light on a few positive aspects of disasters recommending a holistic approach here.

Economic outlook of natural disasters

Firstly, it is important to note that different kinds of calamities impact different areas of economic activities depending upon their nature. For example; floods mostly affect agriculture while earthquakes affect manufacturing and service industry. So, making generalized statements about impact on the whole economy does not make much sense unless the impact has been analyzed in totality. The natural calamities disrupt the smooth flow of economy and many times result into the temporary closure of many businesses and the stock market. All the three sectors (agriculture, manufacturing & service industry) of an economy are inter-dependent and a disruption in any of these sectors leads to a comprehensive loss. Let’s see how. The availability of natural raw materials like coal and agriculture based inputs are mostly restricted to particular geographic locations. If the calamity happens in such areas, the availability gets squeezed. A number of industries which base their production on such raw materials suffer. Moreover, most of the industries now work on ‘Just-in-Time’ (JIT) and the disasters may disrupt their supply chain. So, the production schedule gets disturbed due to either unavailability of the inputs or delays in their availability. As a result of delays in the industrial sector, the quality of services also suffers. Not only does the domestic economy, but the international trade also suffer. The disruption in the global supply chains weakens the balance of trade situation of the country. However, there is also a positive side to disasters which is mostly overlooked.

A positive view to disasters

Whenever any natural disaster like hurricanes, floods, earthquakes or others happen, the country gets substantial economic aid from other nations. The country attracts lot of funds for recovery from other nations which speeds up the process of recovery. Moreover, it is also believed that disruption gives way to something new and better. Calamities offer an opportunity to improve the outdated systems and infrastructure which have been devastated. The construction requirements also in turn generate lot of employment in the country which is again a boost to the economy. The rate of innovation also gets improved after disasters which may prove very beneficial for an economy in the long-run. But the affects are positive only when the disaster is low or moderate; if there is a severe natural calamity, the impact is never positive.

Disasters are never good in the economic and social sense and therefore disaster management tools are always highly recommended; yet the effects of disasters should be studied in totality. It is only then correct policies can be designed for disaster management.


  • Loayza, N., Olaberria, E., Rigolini, J. & Christiaensen, L. (June, 2009). “Natural Disasters and Growth: Going Beyond the Averages.” Retrieved from:
  • Bennett, D. (July 8, 2008). “Do Natural Disasters stimulate Economic Growth?”The New York Times.