The $9.7 Trillion Problem: Cyclones and Climate Change

Tropical cyclones could cost the global economy $9.7 trillion over the next century, especially if climate projections of fewer but more intense cyclones are accurate.  In comparison to those losses, the cost of action to reduce emissions and beef up coastal preparedness is relatively cheap say researchers.

Humanity and cyclones are no strangers to each other. Roughly 35 percent of the world’s 7 billion people are in the path of cyclones and coastal populations are expected to swell in the coming century.  To understand the future damage that cyclones could inflict on ever-growing coastal cities, two researchers looked at 60 years of cyclone and economic data in a recent National Bureau of Economic Research study.

They found that cyclones — known as hurricanes or typhoons depending on the ocean basin in which they form — left lasting impacts on the economies of the countries they hit.  In the case of major events, such as 1-in-100 year storm like Hurricane Ivan in 2004, the impacts were worse and longer-lasting than a full-blown financial crisis.  If that sounds shocking to you, you’re not the only one who felt that way.

“We didn’t believe what we saw at first,” said Amir Jina, a postdoctoral researcher at the University of Chicago and one of the study’s authors.

Part of the surprise for Jina was the robustness of the results and how they fly in the face of one commonly held thought in economics that disasters can actually give a boost to a country’s economy in the long run.

The losses are essentially hidden in plain sight, spread over long periods of time rather than one big hit.  Countries hit by cyclones continue to grow.  But the study showed that they are knocked onto a different, slightly lower growth track, like a car switching from a highway’s fast lane to the slow (or at least slightly less fast) lane.

Looking at “lost growth” gives a compelling snapshot of what our world could look like if we lived on a cyclone-free planet.  Japan and the Philippines top the list of countries with the most exposure to cyclones.  They also happen to have some of the most sluggish growth rates in Asia, but in a world without cyclones, their growth rates would have been on par with China, which has had some of the most torrid growth rates in Asia.  The numbers also underscore how cyclones are just one among many factors — from policy to natural disasters to technology advancements — that can affect economic growth.

Even large, wealthy countries like the U.S. aren’t immune to the effects of cyclones on growth. The U.S. lost roughly an average of 1 percentage point of growth annually to cyclones from 1970-2008.  That’s essentially $150 billion in lost growth over that period.

The $9.7 Trillion Problem:  Cyclones and Climate Change