Essays on economics of natural disasters in China

Hu, Yuxiao (2025) Essays on economics of natural disasters in China. PhD thesis, London School of Economics and Political Science.

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Abstract

This thesis investigates how flood management interventions and flood events shape the spatial distribution of economic development, firm adaptation, and innovation in China— one of the most flood-prone countries in the world. It examines both deliberate, policy-driven reallocations of flood risk and economic adaptations triggered by actual flooding. Chapters 1 and 2 analyze the impacts of China’s national Flood Detention Basin (FDB) policy, which redirects floodwaters into designated rural areas to protect downstream urban centers. Chapter 1 uses reduced-form empirical methods to quantify the economic costs taken by FDB-designated counties, while Chapter 2 develops a spatial general equilibrium model to assess the broader economic benefits of the policy. Chapter 3 investigates the role of floods in shaping the geographical pattern of patenting activities. Together, the three chapters provide a comprehensive analysis of how both flood risks and flood management strategies influence the geography of economic activity and adaptive responses in China. Chapter 1 examines the economic costs of China’s Flood Detention Basin (FDB) policy, implemented in 2000. Under this national policy, the government designated 96 counties to host FDBs — low-lying areas intended to absorb excess floodwater during extreme weather events. While protecting downstream urban centers, this policy imposes concentrated flood risks on rural counties. Using difference-indifferences methods, the chapter documents significant economic costs for FDB counties: a 10.7% reduction in nighttime light intensity, a 15.9% decline in new firm entries, and a 19.7% drop in fixed asset investment. These losses are persistent and primarily driven by firms’ aversion to locating in high-risk areas, rather than migration responses by individuals. Overall, using causal identification tools, this chapter shows that FDB policy has led to a substantial economic cost in counties selected to take more flood risks. Chapter 2 builds a structural spatial general equilibrium model to quantify both the aggregate benefits of the FDB policy. The model captures trade linkages across FDB counties, protected cities, and the rest of the country. Counterfactual simulations reveal that the policy indeed enhances national output by protecting high-productivity urban centers. Overall, the benefit to cost ratio of the Flood Detention Basin policy exceeds one. However, these gains come at the expense of lower-productivity rural areas bearing the flood risk. The model shows that removing high-productivity counties from the FDB list would not substantially reduce output gains, while greatly improving equity. These findings suggest that the current FDB configuration may overprioritize output over equality. The results indicate the necessity for a more balanced compensation scheme to support vulnerable regions. Chapter 3 explores how floods shape the spatial distribution of innovation in China. Using satellite-derived flood maps and detailed patent data, I created a dataset to measure collaborative patents among different regions. The chapter finds that floods decrease local patenting activity but simultaneously encourage cross-county collaboration in innovation. A one-day increase in average flood duration is related to a 12% increase in collaborative patents between counties. These partnerships are especially strong between counties that share similar flood histories and are more likely to yield disaster mitigation technologies. Mechanism analysis shows that historical flood experience—rather than unexpected shocks—drives the shift toward collaboration, suggesting a strategic adaptation to long-term climate risks.

Item Type:	Thesis (PhD)
Additional Information:	© 2025 Yuxiao Hu
Library of Congress subject classification:	G Geography. Anthropology. Recreation > GB Physical geography H Social Sciences > HC Economic History and Conditions
Sets:	Departments > Economics
Supervisor:	Besley, Timothy and Burgess, Robin and Callen, Mike
URI:	http://etheses.lse.ac.uk/id/eprint/4878

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