The impact of natural disasters on China’s macroeconomy

Pu, Chengyi; Liu, Zhen; Pan, Xiaojun; Addai, Bismark

The impact of natural disasters on China’s macroeconomy

2020

Pu, Chengyi | Liu, Zhen | Pan, Xiaojun | Addai, Bismark

This study attempts to construct an econometric model using China’s natural disaster losses and macro-industry development data from 1980 to 2017 to explore the macroeconomic fluctuations caused by natural disasters. The structural vector autoregressive (SVAR) and the seemingly unrelated regression (SUR) models are employed in estimating the impact of natural disasters on China’s macroeconomy and how the disasters specifically affect the three sectors of the economy: primary, secondary, and tertiary. This study concludes that even though natural disasters in China do not significantly affect the overall real GDP, they have adverse impacts on the production in the primary industry, causing a sudden reduction in the means of production in the market and directly affecting various industries, but the impact on the secondary and tertiary industries is weak. This study also shows that the effect of natural disasters on the primary sector reduced significantly following industry restructuring after China’s accession to the World Trade Organization (WTO). The impact of natural disasters on the primary industry could be reduced by adjusting the industrial structure to deal with macroeconomic shocks caused by natural disasters in order to promote macroeconomic stability of both regional and national economies. Finally, national aid policy should focus on the primary industry since that sector is significantly affected by natural disasters shocks.

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