How Did Disasters Change Consumption Behaviour in Thailand and the Philippines?

• Author: Molnar-Tanaka, Kensuke

1. Introduction

   Developing Asia is one of the most disaster-prone regions in the world. Natural hazards--such as floods, tropical cyclones, and earthquakes--frequently affect countries across the region, causing devastating damage (OECD 2018, 2019). Depending on their intensity and duration, these disasters can affect consumer behaviour. This paper examines the effects of natural hazards on consumption behaviour in Thailand and the Philippines, looking at three large disasters in each country. For Thailand, the study adopts as case studies the tsunami in 2004 that resulted from an earthquake in the Indian Ocean, the floods of 2011, and the further flooding of late 2016 and early 2017. For the Philippines, the study examines Typhoon Bopha in 2012, Typhoon Haiyan in 2013, and Typhoon Meranti in 2016.

   Overall, the study observed a decline in total consumption in Thailand after these disasters. This decline stemmed from a fall in spending in the services sector, including recreation, restaurants and hotels. At the same time, the study observed a general increase in post-disaster household spending on nondurable goods, such as food, alcoholic and non-alcoholic beverages, tobacco products, and clothing. For the Philippines, however, relatively small changes in consumer spending were observed. In the aftermath of disasters, swift and appropriate government reactions and policy responses are necessary to cope with the damage that they cause.

   The paper begins with a literature review, followed by descriptive and empirical analyses. The policy implications of disasters are discussed in the final part of the study.

2. Literature Review: Consumer Behaviour When Disaster Strikes

   This study draws on existing academic literature that analyses consumer behaviour in the wake of disasters. Despite the inherent unpredictability of these calamitous situations, several authors have argued that consumption growth following a disaster is significantly influenced by past information, namely consumer confidence, consumption growth, and lagged income (Flavin 1981; Campbell and Mankiw 1989). As a result, estimates typically factor in a lag in consumption growth, testing the permanent income hypothesis posited by Friedman (1957) that individuals base their consumption on a longer-term view of income, consuming a fraction of this permanent income in each period, such that the average propensity to consume is equal to the marginal propensity to consume. In turn, the marginal propensity to consume is shaped by a number of factors, including unemployment, household resources, and broader perceptions of uncertainty.

   Several studies have investigated whether large external shocks such as natural hazards or extremely disruptive civil conflicts affect consumption. In particular, Miguel and Roland (2011) explore the long-term impact of the war in Vietnam on local economic conditions. The authors find that the conflict had a moderate negative effect on consumption levels through 1992-93, but that it also contributed to faster consumption growth between 1992-93 and 2002 (Miguel and Roland 2011). In a similar vein, Gignoux and Menendez (2016) study the short- and long-term effects on individual economic outcomes of a set of earthquakes that occurred in rural Indonesia as of 1985. The empirical estimates show that an earthquake reduces household consumption per capita in the short run, but that this negative effect then fades away, with the effect eventually turning out to be positive and statistically significant in the long term (Gignoux and Menendez 2016). These results suggest that any negative short-term impact from the large external shock on consumption dissipated over time, consistent with the permanent income hypothesis.

   Moreover, the impact of a natural hazard depends largely upon its intensity and duration. The negative impact on economic outcomes is stronger for more intense disasters (Lee, Zhang, and Nguyen 2018). Similarly, Baez et al. (2015) investigate the causal consequences of Tropical Storm Agatha, in 2010, on household welfare in Guatemala. The authors find that households reduced their food consumption by 10 per cent on average, with a larger impact among urban households, for which average consumption per capita dropped by 12.6 per cent. This greater impact is attributed to the strength of the shock itself, with much stronger excessive precipitation in urban areas (Baez et al. 2015). More generally, Benson and Clay (1998) show that countries that suffer frequently from disasters tend to experience lower growth rates than countries with fewer disasters.

   The change in consumption behaviour in times of crisis is asymmetric across different categories of goods. It is well documented that purchases of non-essential goods can easily be postponed. When the reason for postponement wanes, however, some portion of the missing demand tends to recover (Hai, Krueger, and Postlewaite 2013). Forbes (2017) studied the short-term consumption patterns in the aftermath of the 2011 earthquake in Christchurch, New Zealand. The study showed that immediately after the event-namely, within the first week-consumers mostly purchased essential items, such as water, non-perishable food, products providing access to communication services, and cleaning products (Forbes 2017).

   Anttila-Hughes and Hsiang (2013) assess the economic effects of typhoons in the Philippines. They conclude that income losses induced by the typhoons translated into a 7.1 per cent drop in household spending, with the sharpest adjustments hitting the kinds of spending most akin to investments in human capital, such as medicine, education, and high-nutrient food. By contrast, spending tends to fall much less when it comes to pure consumption goods, namely recreation, alcohol and tobacco (Anttila-Hughes and Hsiang 2013). Similarly, Aladangady et al. (2016) show that in the immediate aftermath of Hurricane Matthew in the United States in October 2016, consumer discretionary spending decreased, falling by 4.1 per cent at restaurants, and 6.8 per cent at clothing stores.

3. Data and Descriptive Analysis of Thailand and the Philippines

   This section briefly introduces the large disasters in Thailand and the Philippines used in this analysis, and examines consumption data before and after these disasters to evaluate the effects of these events, particularly on consumption.

   3.1 Thailand

   The present study focuses on three disasters in Thailand: the tsunami in 2004, the floods of 2011, and another flooding disaster in late 2016 and early 2017. These are among the biggest disasters to affect Thailand in terms of human casualties or property damage.

   The 2004 Indian Ocean Earthquake and Tsunami

   The 2004 Indian Ocean tsunami occurred on 26 December. An earthquake measuring 9.1 Richter scale struck west of Sumatra causing massive tsunami waves from Indonesia to the east coast of Africa. The tsunami displaced 1.7 million people in fourteen different countries, killing nearly 230,000 people with the total damage estimated at US$9.9 billion. More than half of the total deaths and damage occurred in Indonesia (Telford, Cosgrave, and Houghton 2006). According to the Centre for Research on the Epidemiology of Disasters (2020), the total number of people affected in Thailand was about 67,000, and the total damage was estimated at US$1 billion. It is estimated that more than 8,200 were killed and approximately 8,400 were injured by the tsunami in Thailand alone. The most affected sectors in Thailand were tourism, fishing and agriculture (Schwartz et al. 2006; TDRI 2005).

   Thailand's Riverine Floods of 2011-12

   A series of riverine floods took place from August 2011 to January 2012, starting in the Mekong and Chao Phraya rivers in northern Thailand and Lao PDR, and extending to parts of Thailand's capital, Bangkok. Thailand is prone to flash floods during the monsoon season due to its tropical climate. The 2011 riverine floods affected around 13 million people, inundating 9.1 per cent of the land mass, causing at least 680 casualties, and causing roughly US$45.7 billion in damage (Centre for Research on the Epidemiology of Disasters 2020). Approximately 90 per cent of the damage occurred to the private sector, of which 70 per cent to the manufacturing sector (Poapongsakorn et al. 2012; World Bank 2011).

   The Flood Disaster in Southern Thailand in 2016-17

   The floods of 2016-17 in southern Thailand affected nearly two million people, causing ninety-five casualties, and property damage of about US$1.15 billion (Centre for Research on the Epidemiology of Disasters 2020). (1) The rains that caused the flooding were the heaviest in the region over the previous eleven years. The gum and palm oil industries, which are based on farming in the inundated regions, were especially affected by the floods. Furthermore, the heavy rains also destroyed much infrastructure, such as roads, bridges and railways (Tebakari and Hayashi 2018).

   Analysing Disasters in Thailand: Household Consumption Data and Descriptive Statistics

   In order to study the effects of these disasters, data on quarterly household consumption for 2003-18 from Thailand's Office of the National Economic and Social Development Council were examined. These data are seasonally adjusted and inflation-corrected using chained volume measures (with 2002 as the reference year).

   Table 1 provides descriptive statistics for the data used for this study. On average, household spending on food and non-alcoholic drinks is the highest, while expenditure on education is the lowest. Generally, Thai households spend around a third of their budget on non-durable goods including food, beverages, and tobacco products. Spending in restaurants, hotels, and on recreation--all categories particularly susceptible to natural hazards--accounts for about 18 per cent of total consumption.

   Figure 1 shows Thailand's total consumption before and after these disasters. The statistics...