The Impact Of Wenchuan Earthquake On Sichuan Province Economic Growth

Wenchuan earthquake caused direct economic losses up to845.1billion RMB which is the most serious earthquake in China since the reform and opening. The total loss of91.3%was happened in Sichuan Province. The CPC Central Committee and the State Council start reconstruction work after the occurrence of Wenchuan earthquake immediately. Wenchuan earthquake has two impacts on Sichuan Province. On the one hand, the destruction of capital in Wenchuan earthquake leads to reduced productive capacity that will lead to lower economic growth on Sichuan Province. On the other hand, the fiscal reconstruction stimulus, and the additional demand for investment to replace destroyed capital leads to a boost in economic activity. What is the exactly impact of Wenchuan earthquake on Sichuan Province has become widely concerned. Understanding the impact of Wenchuan earthquake on Sichuan Province’s economic growth, is undoubtedly, has an important significance in the future to respond to natural disasters in formulating economic policy value.The paper proceeds as follows. Section1starts by introduction of this paper. Section2follows by reviewing the related literature. Section3is the theoretical analysis of Wenchuan earthquake impacting on Sichuan Province. Section4presents the counterfactual model and rule of variables selection and empirical results are discussed in Section5. Conclusions follow.The main conclusions of this paper are as follows. Both empirical and theoretical analysis shows that Wenchuan earthquake has a significantly impact on Sichuan Province’s economic growth in the short-term. In the long-term, However, Wenchuan earthquake has no significance on Sichuan Province’s economic growth.The main contribution of this paper is the following. In the first place, this paper from an empirical perspective uses Hsiao et al.(2011) counterfactual analysis the Wenchuan earthquake impacting on the Sichuan province’s economic growth path. However, this paper makes innovation that use Lasso regression for variable selection instead of Hsiao et al (2011) used in the original text of the Akaike Information Criterion. Lasso regression does variable selection having both rigorous theoretical foundation and faster Select speed. In the second place, there are few studies of the impact of natural disasters on economic growth in domestic at present. Last but not the least, the conclusions based on the analysis of theoretical and empirical models should have a strong policy recommendation on making economic policies after the natural disasters for stimulating economic growth.