The Local Economic Impact of Natural Disasters

We use nearly four decades of U.S. county data to study dynamic local economic impacts of natural disasters that trigger federal aid. We find these disasters on average raise personal income per capita in the longer run (8 years out). We also find that, in the longer run, wages and home prices are higher, while employment and population are unaffected, suggesting the income boost may reflect productivity increases and greater demand for housing in supply-constrained areas or compositional shifts. Allowing for heterogeneity across disaster types, we find the longer-run income boost is driven primarily by hurricanes and tornadoes. We also find the longer-run boost increases with damages, suggestive of an important role for insurance and government aid—which are highly correlated with damages—in fueling recovery. A spatial spillover analysis suggests the longer-run net effects of local aid-inducing disasters for wider regions are near-zero.