The Impact of Extreme Weather Shocks on Local Economic Activity in Taiwan and the Philippines

ABSTRACT Changes in weather and climate have inspired researchers to re‐examine the relationship between meteorological events and the economy. The increasing occurrence of violent storms has had significant impacts on life and property, especially in typhoon‐prone countries. However, the effects of typhoon shocks vary across areas (e.g., towns and cities), and these regional differences are often diluted at aggregated levels. Therefore, this study performs a granular geographic, cross‐country analysis to control for the spatial differences in weather patterns. As economic measures are not always available at finer geographies, this study employs night‐time lights as a proxy for economic activity at the town and city levels. To indicate potential damage caused by typhoons, this study also calculates an index based on historical typhoon track data and a wind field model. Estimation results reveal that a typhoon destroying half of the property can lower annual average radiance and light sources per square kilometre by about 10% and 12% in Taiwan, and 9% and 4%–5% in the Philippines, respectively. The effects are more pronounced when analysed quarterly. Additionally, distant lags of the damage index imply positive effects on economic activity in Taiwan, but little evidence of this behaviour is found in the Philippines.