The Impact of a Large-Scale Natural Disaster on Local Economic Activity: Evidence from the 2003 Bam Earthquake in Iran

This study provides new causal evidence for the impact of a large-scale natural disaster on local economic activity in Iran using nighttime light intensity. We apply the synthetic control method (SCM) and nighttime light (NTL) data from 1992 to 2020 for 31 provinces and 429 counties to study the impact of the 2003 Bam earthquake in the Iranian Kerman Province. According to the results and statistical inference tests for the SCM, Bam County and four neighboring counties experienced a statistically significant boost in economic activity in the years following the earthquake. This increase in local economic activity can be explained by the combination of several factors, such as an unprecedented inflow of national and international disaster relief during the reformist government of President Khatami, the political trust and mobilization of civil society in this period, the cultural importance of Bam, the severity of the earthquake, and the media attention. Additionally, economic activity in Bam County returns to its pre-disaster development path after seven years.