northeastern university seal
EXPLORE NORTHEASTERN

 April 28, 2021

This paper was presented at the Resilient Nation Partnership Network Next Generation of Resilience Student Showcase, sponsored by FEMA.

 

Introduction

The COVID-19 pandemic has put the world into a tailspin and disrupted the “normal” life that most of society has come to be comfortable with, while exposing all the incredibly real (yet ignored) problems our systems have that most people in the economic bottom billion (Ritzer & Dean, 2015) have to live with; extending from food insecurity, education inequality to the issues in the housing sector.  COVID-19 has devastated the world with over 70 million confirmed cases and over 1.5 million people dead around the world and the situation is not getting better since cases and deaths keep rising. According to the Economic Outlook Interim Report: Coronavirus (COVID-19): Living with Uncertainty, produced by the OECD this past September, outlines how the outlook is going to be uncertain and the projections are going to be irregular at best. The real GDP growth for the world will decline 4.5% for 2020 and only increase to 5% for the entire year of 2021 (OECD Publishing, 2020).

This pandemic has left the world in a daze about the future and we as a global society will need to work together to come up with solutions on local, regional, and international levels, to navigate our way through this incident. And the Coronavirus pandemic is just one of many shocks to all countries’ economic systems. The increasingly unpredictable and violent storm systems from climate change as well as the related incivility and human made disasters have many economies on the edge and things are considerably more volatile for emerging economies looking to break into the global market amidst all these shocks.

The hypothesis is that with regards to climate change and more unpredictably violent storms, how can better coordination between economists and disaster management in Indonesia and Vietnam further secure industry and civilian infrastructure so as to positively affect the progress of those Next Eleven (N11) emerging economies? To answer this question, this paper will explore core concepts such as Indonesia, Vietnam, economic modeling, resiliency, macroeconomists, disaster-based shocks, climate change, and the pandemic. The methods used will primarily include qualitative and quantitative studies.

The dependent variable is system performance and stability being measured by Gross Domestic Product (GDP), the baseline for how well the economy of a country is doing. The higher GDP is, the “better” a country is doing in terms of goods and services sold and income made. However, you can have a high (or “good” GDP) and still have concerns such as homelessness, starvation, and civil unrest.  The independent variable(s) will look at different economic theories and economic models within different countries, a major sector within both countries and different disaster-based shocks to the system.

My data will come from international journals, books and individual experts within the field of economic forecasting, disaster management, resilience and economic ecosystems. This paper hopes to explore better ways that disaster management (DM) and Economists (ECs) can work together at a national level to positively influence both the resiliency efforts of DM and the forecasting of ECs in such a way that hopes to include resiliency efforts/budgets etc. to allow for sustained development in Indonesia and Vit Nam, two of the N11 countries with GDPs of $1 trillion and $244 billion respectively.

Literature Review

This section will examine various themes to determine the how the EC and DM sectors can work together in a more seamless fashion to forecast economic markets. Doing so will help build resilience on country levels and international levels. First, economic theories will be described to lay the foundation. Next, the disaster management process and the economic forecasting process will be explored. And lastly, a case study of Indonesia and Vietnam will be presented to how why a more cohesive structure needs to be implemented.

Economic Theories

The classical economic theory, first founded by Adam Smith, highlights the fact that free markets tend to lead to an efficient outcome and are self-regulating. Economists who maintain the classical approach think that the economy will always be capable of attaining a natural level of real GDP or output. This is the level of real GDP that is obtained when the economy’s resources are fully active (Smith, 1784). The Keynesian economic theory is a macroeconomic economic theory of total spending in the economy. Its effects on output, employment, inflation, etc. based on this theory, supports increased government expenses and lesser taxes to stimulate demand and pull the global economies out of depressions. Understanding these theories will help lay the groundwork the economic forecasting process.

Economic Forecasting Process

In general, an economist is an expert in the social science discipline of economics. An individual in this profession usually studies, develops, and applies theories and concepts from economics and writes about economic policy. Based on Macroeconomics: Theory through Applications economists and their job functions can be explained as “Economists take their inspiration from exactly the kinds of observations that we have discussed. Economists look at the world around them—from the transactions in fast-food restaurants to the policies of central banks—and try to understand how the economic world works. This means that economics is driven in large part by data. In microeconomics, we look at data on the choices made by firms and households. In macroeconomics, we have access to a lot of data gathered by governments and international agencies. Economists seek to describe and understand these data” (Macroeconomics: Theory through Applications, chapter 1).

Macroeconomics is a subdivision of economics dealing with multiple greater factors of an economy such as performance, structure, human behavior, and decision-making.  This includes regional, national, and global economies.  A macroeconomist studies the historical data and trends in the economy at a global level and estimate forthcoming movements in areas such as unemployment, inflation, economic growth, productivity, and investment. Economists follow the same steps when forecasting; look at the scope (key economic variables that are dependent and independent of each other), review other literature produced from people/sources), acquire data inputs, look at historical data, model/simulate that data, and report the findings.

Disaster Management Process

The disaster management process can be outlined in a prepare, respond, recover framework. This process is the coordination of preparing, responding and recovering from an impact. This impact can be a single-family house fire or a hurricane and everything in between. In a typical preparedness phase, DM jurisdictions need to be assessing their readiness capacity, reviewing and restocking inventory, completing supply checks, updating emergency management plans with partners within the immediate community and the refining the internal systems and processes. Preparedness is a significant component to ensure that a community is ready to respond and support the affected communities (Natural Disasters, 2017). The response phase is when an impact has created instability within a community and various organization and citizens come together to protect life during a crisis. This is the phase where locating the affected people and mass care (feeding efforts and shelter) is most important to complete (Sheu, 2007).

The last phase of the disaster management cycle is recovery. Recovery can be a short-term and a long-term process. Programs in this phase focus on resources that can help rebuild infrastructure, economic for families and individuals, and restore social networks (Natural Disasters, 2017). These recovery efforts help individuals, families and communities find a way back or to a “new normal”. These processes focus on services such as health check-ins, mental health sessions, transition from emergency shelter to permeant housing solutions, or cash voucher systems to allow people more funds while they wait on insurance or state disaster relief to take effect.

Resilience

A traditional definition of resilience is the capacity to recover quickly from difficulties and/or toughness. Another definition for resilience that has been used is that the concept is different in the perspective of individuals, families, organizations, societies, and/or cultures (Kimhi, Marciano, Eshel, & Adini, 2020). There are three standard types of resilience that being studied currently; individual, community, and national. Each one represents a level of resilience within society. Individual resilience is a concept of now well a person can overcome an adverse event; loss, trauma, disasters (natural or man-made), etc. This level of resilience is based on one’s self-confidence and the capacity to endure the unknown (Bonanno, G.A2004). The next level of resilience is community resilience (CR). This level of resilience illustrates the collaboration between individuals and their community. The success of the whole community is in providing for the needs of its members; families and small businesses, and the extent to which individuals feel supported by their community is how CR is measured (Bonanno, Romero, & Klein, 2015).

National resilience is a wide-ranging idea that addresses the issues of social sustainability and strength in several diverse areas. Those themes are trust in the integrity of the government and other national institutions, belief in social solidarity, and patriotism Ben-Dor, G., Pedahzur, A., Canetti-Nisim, D., & Zaidise, E. (2002).  The last piece of resilience that will be discussed is resilience thinking. This concept looks at how to investigate interacting systems of people and nature – or social-ecological systems – can best be managed to ensure a sustainable and resilient supply of the essential ecosystem of services on which humankind depends on. This approach has seven principles that can be applied to communities; diversity and redundancy, managing connectivity, managing small variables and feedbacks, foster complex adaptive system thinking, encourage learning, broaden participation, and promote polycentric governance (Simonsen, S. H., 2015). This approach supports policies that can better manage the ecological, market or conflict-related shocks.

Indonesia & Vietnam

This comparative analysis will be reviewing two countries, Indonesia and Vietnam, and will help highlight why DM and EC need to work together in the process of economic forecasting. Looking at characteristics such as their GDP levels and a sector that each has and plays an imperative role in their economies, will show how a combination of economic forecasting and disaster planning is needed in government policy to better support resilience efforts to support emerging economies to keep growing and enter the global markets.

Indonesia is the fourth largest country within Southeast Asia and is a major producer of agricultural products. One of the unique aspects of the country is that it is made up of more than 17,000 different islands and stretches across the Indian Ocean and Pacific Ocean. The islands of Java and Bali account for about 7% of Indonesia’s total land area but 60% of the population. Agriculture is taken very seriously on these islands, with up to three crop rotations each year and consists of exported products such as tree crops, including palm and coconut products (33.8%), rubber (18.6%), coffee, tea and spices (25.9%) and import goods. This sector counts for about 14% of the country’s overall GDP. The total GDP is $1 trillion USD and growing by 5% at an annual rate. Because Indonesia suffers from several disaster-based shocks such as floods, landslides, tsunami, volcanic eruptions, and earthquakes (World Bank, 2020), it is important to protect that sector and the land. In 2004, Indonesia, along with 9 other countries were affected by a major earthquake and tsunami that killed a total of 227,898 people and economic loss of 15 billion USD.

Vietnam is one of south-east Asia’s fastest-growing economies and has set its sights on becoming a developed nation in a short amount of time. Vietnam’s development over the past 30 years has led to a swift economic growth, transforming one of the world’s poorest nations into a lower middle-income country. Currently their total GDP is $244 billion USD and more than 45 million people have been lifted out of poverty. In the same as Indonesia, agriculture also plays a major role in Vietnam’s economy. It makes up one third of their budding economy. Vietnam, comparable to Indonesia, also suffer from disaster-based shocks (floods, earthquakes, and typhoons (World Bank, 2020)). The most recent disaster/economic shock was this year, the 2020 Central Vietnam floods. These 12 floods, lasting over a month in total, resulted in total of 189 deaths and 1.52 billion USD in economic loss for the country.  There is a clear connection and opportunity to coincide the inevitable reoccurrence of these natural disasters with the need for resilience based economic policy in order to protect the very industries that will propel Indonesia and Vietnam into the global market.

Disasters will keep happening. The two mentioned are just 2 examples and there are countless others and this year has been the worst years for hurricanes alone. Having a process that has economic professionals and disaster management personnel working together to affect economic policy in Vietnam and Indonesia by utilizing historical data, storm predictions, and necessary resiliency efforts to protect the agricultural industries. This process would also increase the number of lives saved while keeping the economy in a positive trajectory year after year, which is what emerging economies want, so they move into the global market.  In fact, it could be said that in the case of emerging economies, this type of holistic approach may be the key factor that allows them to emerge from and join into the global market more than any other approach.

Implications

Overall, economists and disaster management look at different models to make predications when there is an international shock that has disrupted the economy and because sustainability is in all aspects, it is more important now more than ever, that we must look at the sustainability holistically. However, because there are various models with unlimited variables and always having a component of the unknown it is difficult to pinpoint exactly how the economy is going to respond and how the recovery process is going to work due to the fact countries, states, counties and cities recover at different rates and typically end up working in silos rather than working together.

A proposed thought process is what I call the Zipper Philosophy. This would be an increased international resilience design framework that has economists and disaster professionals at all levels working together and keeping human lives at the center when it comes to forecasting markets, disasters, or any other shock/stressor. On one side of the Zipper Philosophy is disaster management and on the other side there is the economists. The idea would be to improve the working relationship to close the gap of missed storms and/or economic shocks that take society surprise so often on each level; local, regional, national and international.

This framework should focus on The Four Ps; policy reform, preparedness actions, proactive measures, and partnerships. Stronger polices at all levels would allow for policy writers to pass policies that support and encourage economists and disaster management personnel to work side by side to accomplish a common goal of protecting the community they live and serve in. Proactive measures in to be increased to ensure the readiness of communities on each level; individual, community, national and spilling over into the international community. Focusing on preparedness efforts instead of always reacting and responding to a crisis allows communities to plan so they may have the supplies they need before the incident occurs. This will allow resilience to work and thrive. Lastly, partnerships that increase our networks professionally, personally and internationally, will help us rebuild and/or keep building economies that are able to sustain the hard times that are coming. Encouragement of active partnerships between the academic/private sector that economists tend to live in and what truly happens in the real world can allow leaders to interact in a way that is more understood and gives room for the unexpected.

 

References

Aghion, P., & Durlauf, S. (2014). Handbook of Economic Growth. Retrieved November, 2020, from https://www.sciencedirect.com/handbook/handbook-of-economic-growth

Alesina, A. (1988, January 01). Macroeconomics and Politics. Retrieved November, 2020, from https://www.journals.uchicago.edu/doi/abs/10.1086/654070

Authors, M. (2020, September). Global Housing Watch. Retrieved November 19, 2020, from https://www.imf.org/external/research/housing/

Ayub, B., Naderpajouh, N., Boukamp, F., & McGough, T. (2020, September 10). Housing market bubbles and urban resilience: Applying systems theory. Retrieved November 29, 2020, from https://www.sciencedirect.com/science/article/pii/S0264275120312737

2020 Central Vietnam floods. (2020, December). Retrieved December, 2020, from https://en.wikipedia.org/wiki/2020_Central_Vietnam_floods

Bank, World (2020, October). Overview. Retrieved December, 2020, from https://www.worldbank.org/en/country/indonesia/overview

Barrett, C., & Constas, M. (2014, October 07). Toward a theory of resilience for international development applications. Retrieved November, 2020, from https://www.pnas.org/content/111/40/14625.short

Ben-Dor, G., Pedahzur, A., Canetti-Nisim, D., & Zaidise, E. (2002). The role of public opinion in Israel’s national security. In American Jewish Congress: Congress Monthly (Vol. 69, No. 5, pp. 13-15).

Bonanno, G. (2004). APA PsycNet. Retrieved December, 2020, from https://psycnet.apa.org/doiLanding?doi=10.1037%2F0003-066X.59.1.20

Bonanno, G. A., Romero, S. A., & Klein, S. I. (2015, June). The Temporal Elements of Psychological Resilience: An Integrative Framework for the Study of Individuals, Families, and Communities. Retrieved December, 2020, from https://www.tandfonline.com/doi/abs/10.1080/1047840X.2015.992677

CDC, C. (2020). Centers for Disease Control and Prevention. Retrieved November 02, 2020, from https://www.cdc.gov/

Elliott, M., Georg, C., & Hazell, J. (2020, November 16). Systemic Risk Shifting in Financial Networks. Retrieved November 29, 2020, from https://www.sciencedirect.com/science/article/pii/S0022053120301502

Finance and Development. (2011, June). Retrieved November 29, 2020, from https://www.imf.org/external/pubs/ft/fandd/2011/06/basics.htm

Helbing, D. (2013, May 01). Globally networked risks and how to respond. Retrieved November 29, 2020, from https://www.nature.com/articles/nature12047

2004 Indian Ocean earthquake and tsunami. (2020, December). Retrieved December, 2020, from https://en.wikipedia.org/wiki/2004_Indian_Ocean_earthquake_and_tsunami

Kimhi, S., Marciano, H., Eshel, Y., & Adini, B. (2020, September 15). Recovery from the COVID-19 pandemic: Distress and resilience. Retrieved November, 2020, from https://www.sciencedirect.com/science/article/pii/S2212420920313455.

Jiuh-Biing Sheu, An emergency logistics distribution approach for quick response to urgent relief demand in disasters, Transportation Research Part E: Logistics and Transportation Review, Volume 43, Issue 6, 2007, Pages 687-709, https://doi.org/10.1016/j.tre.2006.04.004

Open Textbook Library, Distributor. Macroeconomics: Theory through Applications. (2012). Web.

Prasad, Abhaya S, and Francescutti, Louis Hugo. “Natural Disasters.” International Encyclopedia of Public Health. Second ed. Elsevier, 2017. 215-22. Web.

Publishing, O. (2020, September). OECD Economic Outlook, Interim Report September 2020: READ online. Retrieved November, 2020, from https://read.oecd-ilibrary.org/economics/oecd-economic-outlook/volume-2020/issue-1_34ffc900-en

Purica, I. (2015). Nonlinear Dynamics of Financial Crises. Retrieved November 29, 2020, from https://www.sciencedirect.com/book/9780128032756/nonlinear-dynamics-of-financial-crises

Ritzer, G., & Dean, P. (2015). Globalization: A basic text. Chichester: Wiley-Blackwell.

Simonsen, S. H. (2015). Applying resilience thinking: Seven principles for building resilience in social-ecological systems. Stockholm, London: Stockholm Resilience Centre.

Smith, A. (1784). Additions and corrections to the first and second editions of Dr. Adam Smith’s Inquiry into the Nature and causes of the wealth of nations. London.

University, W. (2009, May). Why Economists Failed to Predict the Financial Crisis. Retrieved          November, 2020, from https://knowledge.wharton.upenn.edu/article/why-economists-failed-to-predict-the-financial-crisis/

WHO, W. (2020). Home. Retrieved November, 2020, from https://www.who.int/

Yoruk, B. (2020, May 27). Early Effects of the COVID-19 Pandemic on Housing Market in the United States. Retrieved November 02, 2020, from https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3607265

Yurdakul, F. (2014). Factors That Trigger Financial Crises: The Case of Turkey. Retrieved November 2020, from https://www.sciencedirect.com/science/article/pii/S1877042813052002