1/18/2005

Is There a Light at the End of the Tunnel for Tsunami Hit Economies?

As the tsunami death toll rises past 162,000 and over 800,000 people being displaced from their homes (ABC News) economists say the tsunami may have a relatively marginal economic impact. In the economies of Sri Lanka, Indonesia, India, Thailand, and the other affected countries, tourism and fishing make up only a small percentage of the overall economy. Even as it has destroyed the livelihoods of millions of families in South Asia, the tsunami will shave only a few points off the region’s economic growth this year. Depending on the importance of tourism in each country, the decrease is expected to range from less than one percent for Thailand, to two percent for Sri Lanka, and four percent for the Maldives, according to estimates by Standard Chartered Bank.

These countries economies are based on other factors such as agriculture, clothing factories, gas production, and many others economic factors besides fishing and tourism. In Aceh Indonesia, the tsunami apparently did not damage the region’s most lucrative properties of oil and gas production facilities. Most of Aceh’s population depends on agriculture for their livelihoods such as rice, peanuts, soybeans, maize, cassava, and potatoes. It is unclear how much agricultural land was flooded by the tsunami, but it wasn’t hit as hard as the fishing and tourism industry. Sri Lanka’s economy, which is still heavily agricultural, with tea, rubber, and coconuts, was not hit by the tsunami. Sri Lanka also has many garment factories that supply stores like Victoria’s Secret which employ, directly and indirectly, close to one million people. None of these companies have been affected by the tsunami. Also, many economists are predicting that there will be a surge in the construction industry and the production of raw materials such as cement and steel, because of the rebuilding that will take place.

Yes, the tsunami may be one of the world’s largest human disasters ever, but it may be just a small wave to the economies in the South Asian countries.

2 comments:

Dr. Tufte said...

Hmmm. Is this a good thing? It isn't directly stated in the article, but there is an undercurrent that because these economies are poor that they haven't lost much.

Getting away from ethics, I have two more specific thoughts on the economics.

First, GDP is a flow that is meant to line up fairly closely with the flow of hours worked. Saying that the tsunamis won't effect GDP too much is akin to saying that 162K is small relative to the millions of people who live in those countries. And that's true.

Second, Peter Harrold (in the linked article) hit the nail on the head. The real loss here is the destroyed capital stock. The labor stock too (which inexplicably Harrold doesn't mention). Those reductions will lower production below what it would have been otherwise in those regions for many years. But these are both stock measures, that are not going to be tracked at all by GDP.

Dr. Tufte said...

There has been some commentary in the blogosphere that the problem with the hardest hit countries is that they didn't make policy changes years ago that would've created those sorts of jobs, increased incomes, and helped create the tax revenue to build things like seawalls. In particular, Thailand chose a route like this, and had far fewer deaths than neighboring countries.