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Natural Hazards and Earth System Sciences An interactive open-access journal of the European Geosciences Union
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Volume 14, issue 4 | Copyright
Nat. Hazards Earth Syst. Sci., 14, 757-772, 2014
https://doi.org/10.5194/nhess-14-757-2014
© Author(s) 2014. This work is distributed under
the Creative Commons Attribution 3.0 License.

Research article 08 Apr 2014

Research article | 08 Apr 2014

Modeling the economic costs of disasters and recovery: analysis using a dynamic computable general equilibrium model

W. Xie1,3, N. Li1,2,3, J.-D. Wu1,2,3, and X.-L. Hao1,3 W. Xie et al.
  • 1State Key Laboratory of Earth Surface Processes and Resource Ecology (Beijing Normal University), Beijing 100875, China
  • 2Key Laboratory of Environmental Change and Natural Disaster (Beijing Normal University), Ministry of Education, Beijing 100875, China
  • 3Academy of Disaster Reduction and Emergency Management, Ministry of Civil Affairs {&} Ministry of Education, Beijing Normal University, Beijing 100875, China

Abstract. Disaster damages have negative effects on the economy, whereas reconstruction investment has positive effects. The aim of this study is to model economic causes of disasters and recovery involving the positive effects of reconstruction activities. Computable general equilibrium (CGE) model is a promising approach because it can incorporate these two kinds of shocks into a unified framework and furthermore avoid the double-counting problem. In order to factor both shocks into the CGE model, direct loss is set as the amount of capital stock reduced on the supply side of the economy; a portion of investments restores the capital stock in an existing period; an investment-driven dynamic model is formulated according to available reconstruction data, and the rest of a given country's saving is set as an endogenous variable to balance the fixed investment. The 2008 Wenchuan Earthquake is selected as a case study to illustrate the model, and three scenarios are constructed: S0 (no disaster occurs), S1 (disaster occurs with reconstruction investment) and S2 (disaster occurs without reconstruction investment). S0 is taken as business as usual, and the differences between S1 and S0 and that between S2 and S0 can be interpreted as economic losses including reconstruction and excluding reconstruction, respectively. The study showed that output from S1 is found to be closer to real data than that from S2. Economic loss under S2 is roughly 1.5 times that under S1. The gap in the economic aggregate between S1 and S0 is reduced to 3% at the end of government-led reconstruction activity, a level that should take another four years to achieve under S2.

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