Quantitative Analysis of Optimal Investment Scale and Timing for Flood Control Measures by Multi-Regional Economic Growth Model: Case Studies in Viet Nam

ERIA-DP-2023-24 ERIADiscussionPaperSeries No.496 QuantitativeAnalysisofOptimalInvestmentScaleandTimingforFloodControlMeasuresbyMulti-RegionalEconomicGrowthModel:CaseStudiesinVietNam HiroakiISHIWATA PacificConsultantsCo.,Ltd.,Tokyo,Japan MasashiSAKAMOTO InternationalResearchInstituteofDisasterScience,TohokuUniversity,Sendai,JapanPacificConsultantsCo.,Ltd.,Tokyo,Japan MakotoIKEDA AsianDisasterReductionCenter,Kobe,Japan ResearchCenterforUrbanSafetyandSecurity,KobeUniversity,Kobe,Japan VenkatachalamANBUMOZHI EconomicResearchInstituteforASEANandEastAsia.Jakarta,Indonesia February2024 Abstract:Thisstudyaimstodevelopandutiliseamulti-regionaleconomicgrowthmodelthatcantakeintoaccountflooddamageandinvestmentindisasterriskreduction,and,throughcasestudiesinVietNam,quantitativelyanalysethelong-termeffectsofinvestmentindisasterriskreductiononthenationalandlocaleconomy,aswellastheoptimalscaleandtimingofinvestmentsinfloodprotection,togainabetteroverviewofthesefactors.Theresultsindicatethatadditionalinvestmentindisasterriskreductioncouldstimulateeconomicgrowth,andthattheoptimalrangeofthedisasterriskreductionbudgetratewasaround0.3%to0.5%ofGDP,assumingaconstantbudgetratethroughoutthetotal25-yearcalculationperiod.Inthecaseofavariabledisasterriskreductionbudgetrate,weobservedthatavariablebudgetratethatgraduallyreducesthedisasterriskreductionbudgetratefromahigherlevelthanthecurrentratecouldfurtherpromoteeconomicgrowththanifthebudgetratewerefixed.Inbothcases,weverifiedthatwithexcessiveinvestmentindisasterriskreduction,thehightaxburdenhadtheriskofreducinginvestmentinproductioncapitalandleadtostagnatingeconomicgrowth.Byregion,thelong-termeffectsofinvestmentindisasterriskreductionweremostseenintheCentralregion,wheretherateofflooddamageisthehighest. Keywords:disasterriskreductioninvestment,extensivefloodrisk,multi-regionaleconomicgrowthmodel,VietNam JELClassification:C68;E17;H21;H54;O11;O41;O53;R12 Correspondingauthor.HiroakiIshiwata.Address:3-22Kanda-Nishikicho,Chiyoda-ku,Tokyo101-8462,JAPAN.E-mail:hiroaki.ishiwata@tk.pacific.co.jp Introduction SincetheadoptionoftheSendaiFrameworkforDisasterRiskReduction2015–2030attheThirdUNWorldConferenceonDisasterRiskReductionin2015,countrieshaveacceleratedtheireffortsfordisasterriskreduction–yetdisasterscontinuetocausemuchhumansufferingandeconomicdamage.Ofthese,theriskoffloodingisincreasinginparticularduetoacombinationoffactorssuchasclimatechangeandincreasingurbanisation.SincetheSendaiFrameworkforDisasterRiskReduction2015–2030willreachthemidpointofitsobjectivetimeframein2023,countriesareconductinginterimassessmentsofpriorityactionsandprogressonglobaltargets.Againstthisbackdrop,SendaiCity,thenamesaketheframeworkwasadoptedin,becamethefirstlocalgovernmentintheworldtoconductamedium-termassessmentofthatframework(SendaiCityandTohokuUniversity,2023),andoutlinedattheThirdWorldBOSAIForum(March2023)andtheUNGeneralAssembly(May2023)theimportanceofcollectingandcollatingdisaster-relateddata–notonlyatthenationallevelbutalsoattheregionallevel–toquantitativelymonitortheoccurrenceofdisasters,andanalyseandassesstheeffectsofdisastermitigationefforts.Meanwhile,followingtheThirdUNWorldConferenceonDisasterRiskReduction,somedevelopingcountrieshavemovedtodevelopdatabasesondisasterstatistics(likeDIBI/InaRiskinIndonesia)thatincludedisaster-relateddataattheregionallevel.Collectingandorganisingdisaster-relateddataattheregionallevelwouldmakeitpossibletoquantitativelyidentifyimpactsandotherfactorsthatarehardtoignoreattheregionallevel,butwhichcannot beascertainedatthenationallevel. InadditiontotheconceptofBuildBackBetterthroughtherecoveryandreconstructionprocess,advanceinvestmentindisasterriskreductionisimportanttobuildadisaster-resilientsociety(UNISDR,2015b).Thelatterissaidtobeparticularlycost-effective(UNISDR,2015a),butadvanceinvestmentintodisasterriskreductionisnotalwayssufficient.Oneofthereasonsforthisisthat,unlikeroadconstruction,itisdifficulttovisualisethebenefitsofadvanceinvestmentfordisasterriskreduction,andfurthermore,itcouldtakealongperiodoftimebeforethebenefitsofinvestmentcometofruition.Thisresultsinapriorityoninvestmentsintootherprojectsguaranteedtodelivereffectsovertheshortterm,ratherthanadvanceinvestmentsindisasterriskreduction.Anexampleofanotherreasonisthattheoptimalscaleandtimingofadvanceinvestmentsindisasterriskreductionremainsunclear,meaningitisdifficulttomakepolicydecisionsforacceleratingadvanceinvestmentsindisasterriskreduction.Acloserlookattheratiooffloodcontrolbudgetstogrossdomesticproduct(GDP)inAsiancountriesassummarisedbyIshiwatari(2019)revealsthatJapan,whichinthepast sufferedfromcountlessfloodsandfocusedeffortsonfloodcontrol,hadabudgetofaround1%in1980andaround0.4%in2014.Thisindicatesthatthebudgetforfloodcontrolaccountedforarelativelylargepercentageofthetotalbudgetuntiltheriskoffloodinghadreducedtoacertaindegree,afterwhichtheratioofthebudgetwasgraduallydecreased.Incontrast,thescaleandtimingofinvestmentinfloodcontrolmeasuresvariesdependingonthevariouscircumstancespresentineachcountry.InthePhilippines,f