The economic cost of a hurricane : A case study of Puerto Rico and Hurricane Georges 1998 using synthetic control method

Abstract

The aim of this study is to evaluate the long-term effect of a hurricane in the output of a country. We estimated the effects of Hurricane Georges on Puerto Rico in 1998 using aggregated level data. To do so, we used a suitable method for comparative studies, the synthetic control method. Hurricane Georges caused an estimate of US$4.3 billion in direct damages. Our results gives validity to recent studies on natural disasters providing negative effects on growth. We find that the Purchasing Power Parity over GDP could have been 9 percent higher by 2010 if the hurricane would have never affected Puerto Rico. Moreover, we show that Puerto Rico’s economy has yet to recover after 12 years of the event. The case of Georges brings an insight of the long-term impacts of a natural disaster as a singular event. A difference in time and country is conducted as an alternative method with also negative effects on the dependable variable.