The impacts of climate induced disasters on the economy: Winners and losers in Sri Lanka

Abstract This paper examines the economic impact of climate induced disasters on Sri Lanka's agricultural, industrial and services sectors and their subsectors. In doing so, it seeks to explain a central paradox – that there are winners and losers in terms of the effect of the disasters on sectoral growth. This poses problems for many developing countries which are seeking to aggressively raise economic growth targets. These targets typically do not adequately take into account the impact of climate change on growth nor that climate change likely is to have a different effect on different economic sectors. Using cross-provincial panel datasets for Sri Lanka for the period, 1997–2018, we show that the agricultural sector is the most affected by climate induced disasters, although not all agricultural sub-sectors are equally vulnerable. Similarly, the industrial sector is shown to suffer a significant negative impact due to strong winds and landslide events. The textiles and garment sub-sectors are negatively impacted while the machinery sub sector shows a positive impact. This indicates the effect of higher demand for new machinery and equipment employed in disaster reconstruction efforts. The study further reveals that the services sector derives a mostly positive impact following disasters, especially public administration and health subsectors. The study also indicates that for Sri Lanka during the current decade, there has been a considerably greater negative impact from climate induced disasters compared to the previous decade.