Study on indirect economic impacts and their causes of the 2008 Wenchuan earthquake

In terms of events that undermine economic growth, the impact of natural disasters is huge and inevitable. Taking the 2008 Wenchuan earthquake as the research object, and based on the country-year data for 181 counties in Sichuan Province from 1999 to 2018, this paper uses the dynamic difference-in-difference method to investigate the indirect impact of this event on the economy. The main findings are as follows: Even though the central government has introduced reconstruction policies and invested a lot of reconstruction funds, in 2018, the per capita income in the extremely and relatively severe disaster areas was still significantly lower than the counterfactual by 21.96% and 7.61%, respectively. There is heterogeneity in the long-term indirect impacts in areas with different disaster levels, and the economies of the extremely severe disaster areas may form a "poverty trap," while the economies of the relatively severe disaster areas are still in a slow recovery state. It was further found that the assistance of central government’s reconstruction funds and the increase in local government expenditure are the reasons for the rapid economic recovery in the short term, and the insufficient level of total demand caused by the investment and consumption is the main reasons for the negative indirect impact on the economy in the disaster areas.