Robert C. M. Beyer
World Bank
Abhinav Narayanan
Asian Infrastructure Investment Bank
Gogol Mitra Thakur
Centre for Development Studies
Working Paper
JEL Codes:
D12, O44, Q54, R22
● Natural Disasters and Economic Dynamics: Evidence from the Kerala Floods
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Exceptionally high rainfall in the Indian state of Kerala caused major flooding in2018. This paper estimates the short-run causal impact of the disaster on the economy,using a difference-in-difference approach. Monthly nighttime light intensity, a proxyfor aggregate economic activity, suggests that activity declined for three months during the disaster but boomed subsequently. Automated teller machine transactions, aproxy for consumer demand, declined and credit disbursal increased, with householdsborrowing more for housing and less for consumption. In line with other results, bothhousehold income and expenditure declined during the floods. Despite a strong wagerecovery after the floods, spending remained lower relative to the unaffected districts.The paper argues that increased labor demand due to reconstruction efforts increasedwages after the floods and provides corroborating evidence: (i) rural labor marketstightened, (ii) poorer households benefited more, and (iii) wages increased most wheregovernment relief was strongest. The findings confirm the presence of interesting economic dynamics during and right after natural disasters that remain in the shadowwhen analyzed with annual data.

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