Assessing the Impact of the Indian Ocean Tsunami on the Economy: Evidence from Indonesia and Thailand

Recent research in developed countries shows an adverse effect of natural disasters on the economy. This paper aims at examining whether this is also relevant for developing countries. Applying a counterfactual approach to provincial data for Indonesia and Thailand, we find that the Indian Ocean tsunami of 2004 negatively affects the economy of the exposed provinces. Specifically, it is shown that the Aceh province of Indonesia experiences a larger decline in per capita GDP compared to the Phang Nga province of Thailand. These results seem straightforward to reconcile with previous evidence using developed countries data.