School of Economics and Finance

No. 576: The Unlikeliness of an Economic Catastrophe: Localization & Globalization

Jose Miguel Albala-Bertrand , Queen Mary, University of London

October 1, 2006

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This paper attempts to show why it is highly unlikely that a disaster can become a catastrophe. We first put forward an economic concept of disaster localization. This shows that a localized disaster is unlikely to affect the macro economy in any significant way and that economic development itself tends to make most disasters localized as an incidental consequence of its endogenous processes. We then show that the effect of current globalization on vulnerability seems to be double-edged. It may increase local vulnerability by disenfranchising communities and adding new sources of economic instability. But it may also speed up the downgrading of vulnerability at the national level by contributing to upgrade localization, further reducing the possibility of a catastrophe. It is therefore, difficult to imagine a realistic scenario in which a disaster could become catastrophic, even less so in developed countries.

J.E.L classification codes: O11, O16, O19, F14

Keywords:Catastrophe, Disaster escalation, Localization, Globalization, Vulnerability