Does Flood Disaster Lessen GDP Growth? Evidence from Malaysia’s Manufacturing and Agricultural Sectors

Abstract

Flood disaster has incurred remarkable costs to human, social and economic aspects, affecting not only the local but national and world economy as well. Flood is the most significant natural hazard in Malaysia, particularly in terms of its frequency and duration, size of the affected areas and economic damages. This paper examines the impacts of flood disaster on gross domestic product (GDP) growth in the agricultural and manufacturing sectors in Malaysia for the period of 1960 to 2013 by applying the Autoregressive Distributed Lag (ARDL) bounds testing approach for cointegration and error correction model (ECM) for short-term relationship. Augmented Dickey-Fuller (ADF) test, Phillips-Perron (PP) test and Kwiatkowski-Phillips-Schmidt-Shin (KPSS) unit root test examines the stationarity of the series. Results show that the series are cointegrated. The findings suggest that size of affected areas affects agricultural growth in both the long run and short run. Meanwhile, total damage cost also appears to affect manufacturing growth in both the long run and short run. The results of the study have important implications on the country’s agricultural and manufacturing sectors.