The Impact of Hurricanes on Trade and Welfare: Evidence from US Port-level Exports
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The Impact of Hurricanes on Trade and Welfare: Evidence from US Port-level Exports Tobias Sytsma1 Received: 12 March 2020 / Accepted: 3 July 2020 / © Springer Nature Switzerland AG 2020
Abstract Hurricanes cause extensive damage and disruption to ports and coastal infrastructure. However, the overall economic consequences of these storms are not necessarily limited to coastal regions. This paper analyzes the indirect effect of hurricanes on trade by considering the connections between affected and unaffected regions through the reliance on coastal ports. The analysis takes advantage of the exogenous variation in hurricane wind speeds at US customs ports to estimate how hurricane activity influences exports shipments originating in unaffected US states. The findings demonstrate that hurricanes have a severe negative impact on bilateral trade flows. For example, a Category 1 storm hitting a port has a similar effect on exports from unaffected US states as a 4% ad valorem tariff. These port-level disruptions aggregate up to broader trade frictions between US states and importing countries through price indices. The empirical estimates and the structure of the theoretical model are used to evaluate counterfactual hurricane scenarios. For example, foreign importers would have been willing to pay over $4 billion to have avoided the additional trade frictions caused by the 2005 hurricane season. Overall, the results shed light on the role of transportation networks in propagating the potential impacts of stronger hurricanes due to climate change. Keywords Port-Level trade · Natural disaster impacts · Welfare analysis
Introduction Hurricanes are among the most destructive natural disasters, and their costs have grown over the past two decades. Between the years 2000 and 2009, hurricane damage costs exceeded $244 billion. Damage costs between 2009 and 2018 increased to $410 billion (The Orlando Sentinel 2019). According to model projections, under a 2o Celsius increase in global temperatures, hurricanes are likely to increase in physical intensity over the next century (Knutson 2020). Increased hurricane intensity implies that, in the absence of adaptation, damage costs may continue to rise. Thus, analyzing the economic impact of these storms is crucial for the development of disaster resilience and climate policy. Tobias Sytsma
[email protected] 1
University of Oregon, Eugene, OR, USA
Economics of Disasters and Climate Change
While hurricanes have a severe economic impact locally, the overall economic consequences are not limited to coastal areas. In particular, linkages through the reliance on coastal infrastructure means that hurricanes can adversely impact trade among unaffected regions. For example, Hurricane Ike resulted in $2.4 billion in damage to Texan ports (FEMA 2008) and shut down port activity for several days (Koenig 2008). Hurricane Katrina resulted in $1.7 billion in damage to Louisianan ports (Santella et al. 2010) and negatively affected port capacity for months after the storm (Sayre 2006). Eve
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