Developing a Global Method for Normalizing Economic Loss from Natural Disasters

Abstract

Our understanding of past natural catastrophes has important implications for catastrophe modeling and disaster risk management, mitigation, and adaptation. To assess past events, loss “normalization” is used to isolate natural and economic factors contributing to economic losses. Conventional normalization adjusts for changes in economic activity using the value of capital stock or gross domestic product (GDP). Due to the limited international availability of capital stock data, most global studies elect to use GDP. However, capital stock may be preferable because it directly measures the value of damageable physical assets. In this study, we present a method for global catastrophe loss normalization using capital stock, and apply this method to normalize hurricane disaster losses in the United States. We assess the robustness of our normalization method by comparing losses to losses derived using public capital stock and GDP data. We find that normalized losses are consistent with losses derived using other measures for capital stock and GDP.