Association for Public Policy Analysis & Management

Natural disasters are becoming increasingly expensive, both for the federal government and for local entities. Of those disasters plaguing the federal disaster relief fund, hurricanes prove the costliest.

Despite this, there is very little research on how federal monies, such as those from the U.S. Small Business Administration (SBA) or from the Federal Emergency Management Agency (FEMA), impact local economic recovery. When a natural disaster impacts an area, there is an influx of federal monies that enter the local economy which were previously not there, creating an exogenous shock that will “kickstart” or “propel” the endogenous recovery processes occurring. However, how do we know these federal monies actually work? There are several conditions that might disrupt the effectiveness of these monies. For example, if an individual or business expects to receive federal monies, the recovery process might be postponed until these funds are received.

This paper has two research objectives: 1) understanding the effectiveness of federal monies, and 2) introducing a regional approach to the literature. First, to understand the effectiveness of federal monies, this paper uses a case study of the state of Louisiana, from 1998 through 2016, and focuses on business recovery. Here, recovery is measured through several key dependent variables: establishments, employment, gross regional product, per capita personal income, and residential building permits. The exogenous responses, or federal monies, include SBA’s 504 and 7a loans, FEMA’s Public Assistance and Hazards Mitigation Grant Program, FEMA’s National Flood Insurance Program, and the U.S. Department of Agriculture’s Rural Business and Industry Loan.

To address the second objective, the state is divided into multi-parish regions based on Louisiana’s Association of Planning and Development Districts, the state’s council of government jurisdictions. When a natural disaster occurs, it doesn’t occur in a “nation,” nor does it occur in a “state.” These are just geographical organizations. Rather, natural disasters occur in local communities, counties, and regions. Most of the disaster literature, however, uses large, multi-state panels to determine disaster impacts. By doing this, the local economic effects are being aggregated out of importance. For example, Texas recovered nicely from Hurricane Harvey. Galveston, however, has not. This paper seeks to provide evidence that large panel datasets are ineffective in this area of research by using smaller, multi-county regions which show different effects from the federal monies.

Similarly, this paper advocates for a more localized disaster recovery strategy. That is, a state should not apply the same recovery model, whether it’s financial or other assets, to each county or regions.