The Short-Run Effects of a Natural Disaster With Imperfect Interregional Labour Mobility

Abstract

A multi-regional computable general equilibrium (CGE) model is used to simulate the short-run economic impact of a natural disaster that strikes the central business district of Wellington. A key feature of the analysis is the inclusion of an interregional migration response to the loss of regional amenity along with endogenous feedbacks from regional real wage relativities. The model economy describes the behaviour of twenty-five industries across five regions built upon bottom-up micro-foundations. The natural disaster scenario focuses on damage to capital of industries concentrated in the Wellington central business district and the flow-on effects via modelled relationships. The analysis of the simulation results considers the role that regional characteristics and interdependencies play in generating the computed short-run outcomes.