International Journal of Humanities and Social Science Vol. 1 No. 14; October 2011 46 Natural Disasters and U.S. Economic Growth: 1952-2009 Richard M. Vogel Department of History, Economics & Politics Farmingdale State College 2350 Broadhollow Road, Farmingdale, NY 11735 United States of America Abstract Over the second half of the twentieth century, the United States has been hit by a number of major natural disasters. The impact of these disasters on U.S. economic growth is evaluated within a growth accounting framework controlling for national economic and financial conditions using an error correction model. The results of the analysis indicate that natural disasters have a small but statistically significant impact on the growth of gdp. Based upon the error correction analysis, it takes approximately 2.3 months for the national economy to return to normal trend growth following a natural disaster. Key terms: natural disasters, economic growth. 1. Introduction Economic development is not simply a straight path of continual growth, but as Simmi and Martin (2010) point out, one that is repeatedly buffeted by all manner of disturbances large and small. Over the course of the twentieth century, the United States has been repeatedly affected by a variety of natural disasters of varying size and impact, such as Hurricane Betsy in 1965, the Loma Prieta earthquake in 1989, and Hurricane Andrew in 1992 to more recent events such as the Hurricane Katrina in 2005 and even more recently flooding along the Mississippi River this past year. While all disaster events do cause some level of economic impact, these impacts are generally most keenly felt within the affected region. Whether a disaster‟s economic impact is more widely distributed across the entire economy and how it may affect the national economy and long run economic growth is of ongoing concern.Over the last sixty years, the costs and vulnerability arising from natural disasters in the U.S. have increased dramatically. From 1950 to 2010, the costs associated with natural disasters have averaged approximately $11 billion annually. Each year, the nation is struck by an average of 12.5 natural disaster events. These events include a wide range of natural hazard events such as droughts, earthquakes, hurricanes and tropical storms, to floods and wildfires. Rising populations and economic development throughout the Southeastern, Southwestern, and Western U.S. have led to ever larger numbers of people, capital investments (housing and plant and equipment), and physical infrastructure vulnerable to a wide range of natural hazards. Analysts such as Bagstad, Stapleton and D‟Agastino (2007), suggest that tax and subsidy programs and general development policies implemented by federal, state and local governments have contributed to this rising vulnerability by creating perverse sets of incentives that increase and encourage development within these hazard zones. Both Stehr (2006), and Sadowski and Sutter (2005) have noted that urban areas are facing greater vulnerability to catastrophic events, and face rising damage costs from hurricanes and storm damages while simultaneously experiencing reductions in death and injuries due to these events. Nordhaus (2006) finds that increases in hurricane damages are readily attributable to increased coastal development and possibly to global warming as well. Studies such as Worthington and Valadkhani (2004) and Yang (2006) find that natural hazard events can and do have significant impact upon financial market returns. These impacts though are predominantly short run in nature. Few if any recent studies look directly at the impact on overall national economic activity and growth. Most studies tend to focus upon directly impacted regions or specific market sectors. In general, disasters tend to cause regional short term economic disruptions that may manifest themselves through both positive and negative changes in regional and sectoral employment, affect regional housing markets, and also impact regional price levels (Michel-Kerjan 2010; MacDonald, Murdoch and White 1987; Kask and Maani 1992). The focus of this paper is how natural disasters impact U.S. growth overall, and how transitory the shock from these events may be. 2. Assessing the impact of natural disaster The impact of natural hazards on the economy can be evaluated through a number of different econometric and simulation methodologies (e.g. computable general equilibrium modeling [(CGE), input-output and dynamic input-output models).