Natural economic disaster
A DEAKIN University analysis of the consequences of natural disasters has found floods are more likely to impact the Australian economy than bushfires.
Deakin Business School’s Professor Mehmet Ulubasoglu and research fellow Dr Muhammad Habibur Rahman examined how natural disasters affect the prices of goods and services and different sections of the economy, including agriculture, mining and manufacturing as well as services sectors such as utilities, construction, transportation, safety and dwellings.
The pair analysed economic data from each Australian state and territory from 1978 to 2014, along with information on timing and location of 36 major fires and 47 major floods, and found floods had an adverse and multi-year effect on agricultural output.
“In 2010-11 alone, the cost of damage and loss from the Queensland floods was $14.1 billion,” Prof Ulubasoglu said.
“It is estimated that by 2050 the economic cost of natural disasters will exceed $33 billion per year.
“Being one of the largest countries in the world by land mass — almost 80 per cent of the size of continental Europe, with large enough differences in weather but with comparable institutional frameworks across states — Australia offers a unique platform to estimate the statewide effects of natural disasters.
“To the best of our knowledge, this is one of the first systematic studies to highlight the state-wide economic impacts of natural disasters in an advanced country context.”
The research, which is funded by the Bushfire and Natural Hazard Cooperative Research Centre, found that a state that experienced a flood in a given year encountered, on average, 4.5 per cent lower agricultural production both that year and the next, compared to a state that did not experience a flood.
“This suggests that Australia lost two years’ worth of agricultural output during the period 1978 to 2014,” Prof Ulubasoglu said.
“The findings indicate that the effect is a general phenomenon rather than being driven by a particular flooding event.
“Mining output also declined following floods because it takes a huge amount of time to pump out the waters that inundated the mining zones.”
The researchers, whose work included both the 2009 Black Saturday Bushfires in Victoria and the 2010-11 floods in Queensland, found that bushfires had no impact on output of any economic sector, including agriculture, although they did impact prices.
Prices were found to respond to disasters fairly quickly in the aftermath of both floods and bushfires, Prof Ulubasoglu said.
“For instance, a surge in food, health and transportation costs occurred following the disasters with a decline in rent — house and recreation and culture prices.
“If statewide food prices were to rise by an average of 0.59 per cent in the quarter of a disaster episode, this would raise the overall inflation of the same quarter by up to 0.1 per cent. However, the effects would be transitory, and taper off as the disaster effects unwind.”
The research also showed the high cost of insurance claims. “The data indicate that the floods and bushfires in our sample resulted in a total insurance claim in excess of $15 billion due to destroyed houses, buildings, and infrastructure,” Prof Ulubasoglu said.
“However, these figures are highly likely to underestimate the true damages and losses due to reporting bias and other intangible damages caused by natural disasters.”