The Haiti earthquake reminds most of us of images of entire quarters of a city destroyed, only heaps of concrete and dust left behind, and most importantly: enough humans dead to populate a Providence-sized city. Not only is this one of the greatest tragedies of recent years, but it hit a country that has suffered numerous other natural disasters as well as political instability and military coups. In a nation where 50% would be a modest estimation of unemployment and which struggles to finance its debt obligations, events like the earthquake are more painful than anywhere else. This article focuses on a more objective aspect of the natural disaster, the economic losses suffered by Haiti, attempting to give a rough estimation of the economic effects. In this article, I will suggest some possible ways to do so based on the data we have about the loss of infrastructure and lives.
One very crude way would be to take the number of people killed and the per capita GDP figure and multiply these. The estimated number of lives lost is 230 000 and the per capita nominal GDP in 2008 was estimated $790. So the total loss would be $181 700 000 or 2.5% of the GDP, which evidently equals the percentage of the total population killed. There is at least one significant problem with this method: it only accounts for the loss due to human capital and workforce, but not for the loss caused by the damage to physical capital. This is especially important since the damages are far larger to industrial production than to agriculture, because the epicenter of the earthquake was in the main urban area and in general buildings are more vulnerable than the land used for agriculture. Also, while industry accounts for about 20% of the GDP, only 9% of the labor force works in production. Similarly, while only 25% of the work force is employed in the services sector, it makes up 52% of the GDP.
Another way of improving our estimation would be based on the relative role of the area affected in the whole of the economy. Port-au-Prince, the densely populated capital has more than 10% of the population, and about a third of all Haitians reside in the surrounding metropolitan area. We could assume that industrial activity and services are heavily concentrated in the capital, for example most banking takes place there. If we said that a third of all industrial and service activities were concentrated here, then about 25% of the GDP could have been destroyed.
When estimating losses, statistics about previous catastrophes can be taken into account. Unfortunately, Haiti has experienced a number of similar disasters recently, most notably the hurricanes of 2008 and 2004. Hurricane Jeanne destroyed 7% of the GDP, four similar storms resulted in the loss of about 15% of the total national product. This indicates that the earthquake could easily have caused more than 15% loss, especially taking into account that those events did not results in such significant loss of lives, though many people were affected and made homeless.
It seems that estimations are very dependent on the methods used, and are limited because not much data is yet publicly available on the effects on the earthquake. It is probably safe to say that at least 15% of the Haitian GDP will be lost, while damages to social systems that include the half of the schools in the country and three major universities in Port-au-Prince will hinder growth in the long run, adding to the total damage. While the events are tragic, in the long term increased national and international solidarity can help Haiti move forward. The debt cancellations announced in the aftermath of the earthquake and the inflow of foreign aid are hoped to contribute towards the efforts to rebuild the country and make is stronger than before. Probably the single most important priority should be the the fight against the penetrating corruption and bad business regulations, which severely impede growth.
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