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GTAP Resource #3602

"Extreme weather events in Finland – a dynamic CGE-analysis of economic effects"
by Simola, Antti, Adriaan Perrels and Juha Honkatukia

Due to the climate change, the frequency and magnitude of extreme weather events are predicted to increase in many parts of the world. In our study, we wanted to investigate how these events would affect the Finnish economy as a whole and what would be the economically optimal strategy for both the prevention and aftermath.

We based our analysis on two regional cases flooding events in Finland. In the first one we studied a heavy rainfall in the l city of Helsinki, and in the second one a river flooding in the town of Pori. We used a dynamic regional CGE-model for Finland, VERM to simulate the economic effects. We compared three different strategies for compensating the losses. In the first one, the industries themselves were responsible for their repair costs. Two alternative scenarios portrayed the cases where public authorities and private insurance sector financed the rebuilding, respectively.

Based on our results, we found that the most efficient way to recover from a flood is to let the industries themselves pay the bill –the alternative scenarios both lead to less efficient recovering paths. In all cases, the flooding will cause permanent negative deviation from the baseline GDP level and an increase in employment. GDP decreases mostly due to capital loss and employment increases mostly because of increased demand for construction industry. Even after 15 years, a structural shift to more labor intensive economy is visible in our results. We also found that the long term overall effects are likely to be at least two times higher than the initial effects caused by the flood and thus the initial damage should be considered as an underestimation of the real costs. An interesting result was a regional disparity that we found – although the direct losses of Helsinki floods are smaller than those of Pori, the effects for the entire economy were much larger.

Resource Details (Export Citation) GTAP Keywords
Category: 2011 Conference Paper
Status: Published
By/In: Presented at the 14th Annual Conference on Global Economic Analysis, Venice, Italy
Date: 2011
Created: Simola, A. (4/15/2011)
Updated: Batta, G. (6/15/2011)
Visits: 1,716
- Climate change policy
- Dynamic modeling

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