Figure 2: Relationship Between Direct and Indirect Damages and Gains: National Perspective


This Figure shows how the generalized loss envelope changes to reflect a national accounting stance.

First, direct damage and subsequent indirect loss is transmitted to other regions via altered trading patterns (imports and exports). If the region produces critical materials for which ready substitutes are unavailable, then local indirect losses can spill over to affect the national economy. Hence, it is possible for indirect loss to exceed that sustained by the region alone.

Second, the national economy is impacted in that external aid has to be financed. As a result, indirect gains disappear; the costs incurred outside the region negate local gains. So from the vantage point of the nation as a whole indirect loss must exist. Indirect gains are an illusion, a byproduct of focusing only on the stricken region.

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