No.221 Investments in Flood Protection: Trends in Flood Damage and Protection in Growing Asian Economies

Investing in flood protection is crucial in mitigating flood damage. However, most recent studies have not included an examination of actual investment data nor studied the relationships between investment in flood protection measures and damage or benefits. This paper aims at assessing policies toward flood protection by empirically analyzing flood damage and investment in flood protection measures in Asian economies. The trends of investment and damage in terms of the share of gross domestic product (GDP) vary by country. The People’s Republic of China (PRC) and Japan in the Post-WWII era were able to steadily decrease economic damage, while the Philippines, Taiwan, Republic of Korea (ROK), India, and Pakistan fluctuated in their budget outlays and damage. In cases of either a rising or decreasing trend, it was demonstrated that the Bayesian structural time series model can simulate investment to some degrees. It was also found that investment in flood protection is cost-effective at the regional and national levels. The annual benefits for the past two decades are estimated at 159 billion USD in PRC and 120 million USD in the Philippines. The net benefit (benefit minus cost) accumulation from 2016 in Asian developing economies is predicted to reach 263 billion USD against an investment of 157 billion USD by 2030.

Keywords: Bayesian Structural Time Series model, climate change, cost-benefit analysis, economic internal rate of return, flood damage