Natural Disasters and Economic Dynamics: Evidence from the Kerala Floods (22-April-2022)

Exceptionally high rainfall in the Indian state of Kerala caused major ooding in 2018. This paper estimates the short-run causal impact of the disaster on the economy, using a di erence-in-di erence approach.

Monthly nighttime light intensity, a proxy for aggregate economic activity, suggests that activity declined for three months during the disaster but boomed subsequently. Automated teller machine transactions, a proxy for consumer demand, declined and credit disbursal increased, with households borrowing more for housing and less for consumption. In line with other results, both household income and expenditure declined during the oods. Despite a strong wage recovery after the oods, spending remained lower relative to the una ected districts.

The paper argues that increased labor demand due to reconstruction e orts increased wages after the oods and provides corroborating evidence: (i) rural labor markets tightened, (ii) poorer households bene ted more, and (iii) wages increased most where government relief was strongest. The ndings con rm the presence of interesting economic dynamics during and right after natural disasters that remain in the shadow when analyzed with annual data.