Reconstruction following Destruction: Entrepreneurship in the Aftermath of a Natural Disaster
by Richard Lombardo
Abstract
Entrepreneurship is thought to be the engine of growth in many developing countries. There is, however,
a paucity of evidence on the role that entrepreneurship plays in rebuilding economic livelihoods both in
the short and longer-term in the aftermath of a large-scale shock. This is an important gap in the literature
given the increasing frequency and severity of shocks across the globe. This paper contributes to filling that
gap by investigating the evolution of entrepreneurial success following the 2004 Indian Ocean tsunami, a
large-scale and unexpected shock. Using longitudinal survey data, the Study of the Tsunami Aftermath and
Recovery (STAR), I find large declines in business ownership, profits, and capital for those most exposed
to the tsunami that persisted through 10 years following the tsunami. These estimates can be given a causal
interpretation under the plausible assumption that exposure to the tsunami can be treated as exogenous after
taking into account individual-specific unobserved heterogeneity with fixed effects, including pre-tsunami
geographical features that drove exposure. Individuals living in rural areas and individuals with the least
resources pre-tsunami fared the worst in terms of developing new businesses. However, the massive Build
Back Better reconstruction program promoted entrepreneurship. Receipt of housing aid as part of that
program is linked to an increase in the development of non-agricultural businesses that spurred gains in real
profits.
Duncan Thomas, Faculty Advisor
Michelle Connolly, Faculty Advisor
JEL classification: D1; H84; L26; Q54
Evolution of Wealth and Consumption in the Aftermath of a Major Natural Disaster
By Ralph Lawton
Natural disasters can have catastrophic personal and economic effects, particularly in low-resource settings. Major natural disasters are becoming more frequent, so rigorous understanding of their effects on long-term economic wellbeing is fundamentally important in order to mitigate their impacts on exposed populations. In this paper, I investigate the effects of the 2004 Indian Ocean tsunami on real consumption and assets at the individual level. I also examine the heterogeneity of those impacts, and the related effects on inequality. Taking individual-specific heterogeneity into account with fixed effects, I find individuals living in heavily damaged areas experience major declines in real consumption and assets, and do not recover in the long term. These results are strikingly different than results that do not consider price effects, as well as previously published macroeconomic results. I also find significant heterogeneity by age, education-level, pre-tsunami socioeconomic status, and whether an individual went into a refugee camp. The tsunami resulted in large, long-term declines in asset inequality, and a temporary increase in consumption inequality that returns to near pre-tsunami levels in the long run.
Advisors: Professor Duncan Thomas, Professor Michelle Connolly | JEL Codes: D1, D15, H84
