The impact of a large-scale natural disaster on local economic activity: evidence from the 2003 Bam earthquake in Iran

Abstract This study provides new causal evidence for the impact of a large-scale natural disaster on local economic activity in Iran using nighttime light intensity. We apply the synthetic control method (SCM) to nighttime light (NTL) data from 1992 to 2013 to study the impact of the 2003 Bam earthquake on Bam County in Iran and its neighboring counties. According to the results and statistical inference tests for the SCM, Bam County and its neighboring counties experienced a statistically significant boost in economic activity in the years following the earthquake. Bam’s GDP economic activity increases by an accumulated US$620 million in the post-earthquake period. We find that the average economic gain in Bam following the 2003 earthquake is approximately 5% of Bam’s GDP. We also discuss possible contributing factors to the post-disaster economic boom in Bam.