What Happened to Louisiana? A Case Study on the Economic Growth Effects of Hurricane Katrina

Detta är en C-uppsats från Handelshögskolan i Stockholm/Institutionen för nationalekonomi; Handelshögskolan i Stockholm/Institutionen för finansiell ekonomi

Sammanfattning: This paper investigates the short-run and long-run effects of Hurricane Katrina on state-level economic growth in Louisiana. To provide explanatory value for any findings, the paper additionally includes an analysis of Katrina's effects on possible transmission channels to economic growth, including residential population, labour, and physical capital. Using the Synthetic Control Method, first developed by Abadie and Gardeazabal (2003), we conduct analyses by constructing a synthetic counterfactual to Louisiana which is then compared to the real state. In contrast to most other previous studies on the effects of natural disasters on economic growth, the results show that the short-run effects of Hurricane Katrina on state-level economic growth are significant and positive. The results also show that the long-run effects on economic growth are insignificantly different from the counterfactual outcome, indicating that Louisiana's economic growth in the long term is neither higher nor lower in comparison to absent the hurricane. In addition, compared to absent Katrina, the paper finds that the effects on the transmission channels to economic growth are a sustained decline in residential population, a decline in the unemployment rate during the years after Katrina, an unchanged employment-population ratio, and a capital accumulation in the years following the hurricane. These results provide explanatory value for Katrina's effects on economic growth as well as for what groups of people migrated: mostly those unemployed and those outside the civilian noninstitutional population.

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