Short-Run Impacts of Floods: A Case Study from India

Abstract This paper examines the short-run economic impacts of the 2018 Kerala flood, the third most severe flood in India since 1900, utilizing a variety of monthly data. During the disaster, both household income and expenditure declined significantly, hitting their lowest levels three months after the onset of the event. Expenditure then quickly rebounded to pre-disaster levels, in line with changes in ATM transactions. Household income in contrast surged significantly above pre-disaster levels, propelled by markedly higher wage income. Finally, households borrowed more for housing and consumer durables and aggregate credit increased. We provide indirect evidence that the increase in wage income may be linked to reconstruction efforts and the tightening of the labor market. The findings highlight that while the immediate economic impact of disasters can be severe, reconstruction efforts and government support can be crucial in accelerating economic recovery in the aftermath of natural disasters.