Earthquakes and divergent economic recovery: case studies of Chile and New Zealand

Abstract

Abstract The consequences of natural disasters, such as earthquakes, are evident: death, coordination problems, destruction of infrastructure, and displacement of the population. However, according to empirical research, the impact of a natural disaster on economic activity is mixed. This is relevant for seismic countries such as Chile and New Zealand. This paper contributes to the literature on natural disasters and their economic effects by analyzing the cases of two affected regions within these countries. We employ the synthetic control method to estimate the medium-term impact of two large earthquakes on regional output: the 2010 Maule (Chile) event and the 2010–2011 Canterbury (New Zealand) sequence. We find that Chile and New Zealand experienced opposite economic effects: The GDP per capita of the Canterbury region rose above its counterfactual by about 12% in the main rebuild years, while the GDP per capita of the Maule region showed no clear GDP-per-capita divergence relative to its counterfactual. We suggest that New Zealand’s insurance architecture, implementation capacity, and community co-production helped facilitate a rapid, large-scale rebuild, while Chile’s institutional context supported recovery back to trend but not above trend. The paper highlights that institutional readiness plays a role in mediating disaster impacts and underscores that measured gains are medium-lived output responses.