ACTA UNIVERSITATIS AGRICULTURAE ET SILVICULTURAE MENDELIANAE BRUNENSIS Volume LX 31 Number 7,2012 MACROECONOMIC IMPLICATION OF THE FLOODS - A CASE STUDY FOR THE REGIONS OF THE CZECH REPUBLIC J. Soukopova, L. Furova Received: August 31,2012 Abstract SOUKOPOVA, J., FUROVA, L.: Macroeconomic implication of the floods - a case study for the regions of the Czech Republic. Acta univ. agric. et silvic. Mendel. Brun., 2012, LX, No. 7, pp. 289-298 Floods are natural events with extensive impact on property and life of affected people. They significantly came in 1997 into the life of Czech society and since then has caused damage almost 172 billion CZK. The paper focuses on the assessment of impact of floods from 1997 to 2010 on economic level of each region. The impact is assessed on basis of development of the basic macroeconomic indicators such as GDP and economic level of regions, change in fixed capital formation, sales of industrial products and unemployment. The basic idea is to show how much floods have influenced region's economy and if it depends more on the amount of flood damages or nature of damage (structure within infrastructure). 13 regions of the Czech Republic except Prague were chosen for the analysis. Prague was excluded from the analysis because of its specific status (capital city and the region) and economic conditions among regions in the Czech Republic (higher GDP per capita than the national average). natural disaster, floods, macroeconomic impact, regions, damage Natural disasters are nothing else but extreme environmental events that influence human activities. According to database EM-DAT (2012) of the Centre for Research on the Epidemiology of Disaster, natural disaster is defined as situation or event, which overwhelms local capacity necessitating a request to national or international level for external assistance. The database is major source of data about natural disaster for recent research. It classifies the natural disasters in accordance with certain criteria, e.g. number of kills, affected area, and publishes regular reports on this issue. According to EM-DAT (2011), at the end of the last decade, natural disasters occurred six times more than in 1975. Floods are the most common natural disaster accounting for 40 percent of all natural disasters between 1985 and 2009 (Cuňado and Ferreira, 2011). Usually after every natural disaster, the reports about losses caused by this event are published by media and other research institution. The most of this reports are only limited to the estimation of costs to restore damaged property and do not deal with the systematic impact of disasters on regional or national economy (Fomby etal, 2009). Economic research in this field of the impact of natural disasters on economic development after disaster is still in an early phase of development. The first studies dealing with this issue are created in the 90th. Albala-Bertrand (1993) found that natural disasters have a neutral or positive short-run effect on economic growth. Current research begin to use for analyse of macroeconomics impact on economic development the econometric methods. This analysis demonstrate that short-run and long-run impact of natural disaster on the economy of affected country or region may depend on economic, social, and institutional conditions, as well as on the type of natural disaster and sector of the economy (Fomby etal, 2009). Skidmore and Toya (2002) argue that climatic events have a positive influence and geological events have a negative or neutral impact on long-run economic development of effected area. Contrary 289 290 J. Soukopová, L. Furová Raddatz (2009) find that climatic natural disasters have a negative impact and geological events do not play a significant role in economic development of this region. Hochrainer (2009) finds the negative short-run impact of natural disaster on economic development. Ma (2011) argues that natural disasters indirectly cause lower growth in the short-run through reducing productivity and total output. The lack of productivity depends on the relative development of the country. Cavallo et al (2010) do not demonstrate a significant economic impact of natural disaster. To determine the economic impact of natural events on the affected area is important to distinguish the type of natural disasters. Fomby etal. (2009) find that droughts have a negative effect on economic growth. In, contrast, floods tend to have a positive effect. This effect is stronger in developing countries and is present in the agricultural and non-agricultural sectors. However research indicates that this effect comes only from moderate floods. Severe floods produce negative responses of all economics sectors. Cuňado and Ferreira (2011) build on previous research and confirm the positive impact of floods on economic development of developing countries. In fact, developed countries do not experience a positive impact of floods on overall growth. The positive impact on agricultural growth in developed countries does not seem to spill over to the manufacturing and service sector. Floods are together one of the most important categories of natural disasters in Europe and in the Czech Republic too (Berga et al, 2010). Since 1997 floods have caused damage over 172 billion CZK in the Czech Republic. Already each region was affected by floods at least once. Experience from extreme floods in the Czech Republic between 1997 and 2010 has shown the necessity for a systematic approach to flood protection. This process is carried out in accordance with Directive of the European Parliament and Council 2007/60/ES of 23rd October 2007 on the assessment and management of flood risks. The purpose of this directive is to establish a framework for management of flood risk in order to reduce the negative impact on human health, the environment, cultural heritage and economic development in European Union (Řezáč etal, 2011). Already in 2000 the Czech government approve The Strategy for Flood Protection in the Czech Republic. It is document containing the main principles of flood protection in the Czech Republic. Current Czech research in area of natural disasters is mainly oriented on flood protection in accordance with European Directive and The Strategy for Flood Protection. The studies deal with determination of flood hazards and risks (e.g. Dráb and Říha, 2010), to identify appropriate methods for the determination of damage in hazardous areas (e.g. Korytárová and Hromádka, 2010), the economic efficiency flood control measures. The discussion also leads to the financing system of flood prevention (Šelešovský and Bakoš, 2010), the efficiency of public expenditure on flooding in the Czech Republic (Camrová and Jílková, 2006). The paper wants to open discussion about impact of floods on economic development of the Czech Republic. The aim of the paper is to analyse the economic impact of the flood on the regions and to discuss the relationship between floods and economic development. Economic impact is assessed on the basis of the basic economic indicators of regions - GDP, economic level, gross fixed capital formation, sales of industrial products and unemployment. MATERIALS AND METHODS Method used in this paper is the method of induction and correlation analysis. The amount of flood damage has been chosen as an exogenous variable. First, flood damage by region was detected. In spite of the different sizes of regions were the absolute indicators recalculated per capita (relative indicator). Subsequently the damage was compared with macroeconomic indicators using correlation analysis. As basic macroeconomic indicators for correlation were selected: • Gross domestic product (GDP), • Gross fixed capital formation (GFCF), • Industry sales and • Unemployment. All these indicators were identified by region and that as absolute and relative indicators. Correlation analysis was performed for both absolute and relative indicators (per capita). In addition, both nominal and real values of these variables were identified and their change too (growth and character). The time series from the first catastrophic flood in 1997 to 2010 was selected to analyse. The data on the damage were obtained from reports on the floods issued by the Povodí, State Enterprise and from reports on estimates of damages caused by floods that affected regions have to create and send to the Ministry of Finance of the Czech Republic. Moreover it is only an estimate of damages which is provided by trained staff of municipal offices and the Povodí, State Enterprise. In foreign scientific literature dealing with natural disasters and their impact on affected area, the ECLAC methodology (European Commission for Latin America and the Caribbean) is used to identifying and analyzing damage. This methodology distinguishes direct and indirect damages and secondary effects. In the Czech Republic this is not use. Only direct damages are recorded - damage to tangible and intangible property of households, companies, regions, state and its companies; capital and inventories of finished and semi-finished products, raw materials and spare parts (Pelling etal, 2002). Thus, the hypothesis H is: The floods have conclusively negative impact on long-run economic development of effected area. Macroeconomic implication of the floods - a case study for the regions of the Czech Republic 291 RESULTS AND DISCUSSION A. Flood damages As already mentioned above, the Czech Republic was affected by seven large floods in the years 1997 to 2010. They caused damage over 172 billon CZK. In July 1997 the most tragic floods hit the Czech Republic. In just a few days, over half the usual annual rainfall fell in the Morava and Odra river basins. 60 people died, flood hit 28 districts, i.e. 536 municipalities in 12 regions. Damage amounted to 62 billion CZK. In July 1998 and March 2000, the Czech Republic was affected by smaller flood events in comparison with the preceding and following periods. In 1998 Hradec Králové Region was only affected, specifically the area of town Rychnov nad Kněžnou. Flood caused damages in the amount of 1.8 billion CZK. In 2000, Hradec Králové Region, Pardubice Region, Central Region and Liberec Region were affected. Two people died and damage amounted to 3 billion CZK. The second extreme flood hit the Czech Republic in 2002. Nine regions, including Prague were affected. Highest damages - 26 billion CZK - were recorded in Prague. The main reason is considerable accumulation of social wealth and property in the capital city. The total damage amounted to about 70 billion CZK. In March and April 2006, the melting of snow and intense rain caused next flood. It threatened about 800 municipalities in ten regions. Total damage exceeded 6 billion CZK. Nine people died. In June and July 2009 series of flood events, caused mainly by heavy rainfall, threatened the area of republic, 15 people died. Floods affected 451 municipalities, all regions except Prague. Total damages were estimated about 8.4 billion CZK. Finally, in 2010 flood hit our republic twice. In May and June, Zlín Region, South Moravian Region, Olomouc Region a Moravian-Silesian Region were affected. Damage amounted to about 5 billion CZK. The second flood wave came in August. Liberec Region and the Ústí Region were affected. Total damages were estimated at 9.5 billion CZK, of which more than 80% Liberec Region reported. In 2010, floods caused total damages in the amount of 14.7 billion CZK and 11 people died. Tab. I and II show the amount of flood damage in the regions from 1997 to 2010. For comparison are shown nominal (Tab. I) and real (Tab. II) values of flood damage. From the tables it is apparent that the highest flood damage was in 1997 and 2002. Moreover, in 1997, nominal total damage amounted to about 62 billion CZK. But our analysis only includes nominal damages in the amount of about 25.5 billion CZK for this year. The rest of the damage was caused on the state property and there is no sorting by districts (*). Overall, Prague was the most affected. Nevertheless Prague was excluded from the analysis because of its specific status (capital city and the region) and economic conditions among regions in the Czech Republic (higher GDP per capita than the national average). The other three most affected regions are Moravian-Silesian Region, Central Region and South Bohemian Region. Moravian-Silesian Region has been the most hit in 1997 while the South Bohemian Region and the Central Region were most affected in 2002. Because regions have a different size, it was not possible to use absolute value for the correlation analysis. It was necessary to choose I: The amount of flood damage in the regions of the Czech Republic (CZK million j 1997(*) 1998 2000 2002 2006 2009 2010 Sum Rank Prague 0.0 0.0 0.0 26914.4 65.4 0.0 0.0 26979.8 Central Region 1.7 0.0 872.0 14283.0 1200.0 28.8 0.0 16 385.5 3 Hradec Králové Region 492.2 1880.0 1 577.4 0.0 0.2 31.5 0.0 3 981.3 8 Karlovy Vary Region 0.0 0.0 0.0 77.0 0.0 0.0 0.0 77.0 13 Liberec Region 30.1 0.0 537.4 5.0 0.0 9.4 8212.5 8 794.4 6 Moravian-Silesian Region 12188.5 0.0 0.0 0.0 0.0 3152.3 4145.0 19485.8 1 Olomouc Region 6 169.2 0.0 0.0 0.0 861.6 3 670.0 1.0 10 701.8 5 Pardubice Region 850.0 0.0 68.9 0.0 0.4 1.2 0.0 920.5 11 Pilsen Region 0.0 0.0 0.0 3851.3 0.0 6.1 0.0 3 857.4 9 South Bohemian Region 17.4 0.0 0.0 15152.5 752.4 787.8 0.0 16 710.1 2 South Moravian Region 656.3 0.0 0.0 475.7 1077.6 15.7 317.0 2 542.3 10 Ústí Region 0.0 0.0 0.0 11295.2 904.8 574.2 1925.7 14699.9 4 Vysočina Region 182.3 0.0 0.0 187.0 125.7 41.6 0.0 536.6 12 Zlín Region 4902.6 0.0 0.0 0.0 1212.0 115.5 411.8 6641.9 7 Sum 25 490.3 1880.0 3 055.7 72 240.9 6200.1 8434.1 15013.0 Number of deaths 60 2 9 15 11 Source: Data from the reports on the floods issued by the Povodi, State Enterprise and from reports on estimates of damages caused by floods created by affected regions, adjusted by authors 292 J. Soukopová, L. Furová II: The real amount of flood damage in the regions of the Czech Republic (CZKmillion) 1997(*) 1998 2000 2002 2006 2009 2010 Sum Rank Prague 0.0 0.0 0.0 26438.5 63.8 0.0 0.0 26 502.3 Central Region 1.6 0.0 839.3 14030.5 1170.7 28.5 0.0 16070.5 3 Hradec Králové Region 453.6 1698.3 1518.2 0.0 0.2 31.2 0.0 3 701.5 9 Karlovy Vary Region 0.0 0.0 0.0 75.6 0.0 0.0 0.0 75.6 13 Liberec Region 27.7 0.0 517.2 4.9 0.0 9.3 8091.1 8650.3 6 Moravian-Silesian Region 11233.6 0.0 0.0 0.0 0.0 3121.1 4083.7 18438.5 1 Olomouc Region 5 685.9 0.0 0.0 0.0 840.6 3 633.7 1.0 10161.2 5 Pardubice Region 783.4 0.0 66.3 0.0 0.4 1.2 0.0 851.3 11 Pilsen Region 0.0 0.0 0.0 3 783.2 0.0 6.0 0.0 3 789.2 8 South Bohemian Region 16.0 0.0 0.0 14884.6 734.0 780.0 0.0 16414.7 2 South Moravian Region 604.9 0.0 0.0 467.3 1051.3 15.5 312.3 2 451.4 10 Ústí Region 0.0 0.0 0.0 11095.5 882.7 568.5 1897.2 14444.0 4 Vysočina Region 168.0 0.0 0.0 183.7 122.6 41.2 0.0 515.5 12 Zlín Region 4518.5 0.0 0.0 0.0 1182.4 114.4 405.7 6221.0 7 Sum 23493.4 1698.3 2 941.0 70963.6 6 048.9 8 350.6 14 791.2 Source: Data from the reports on the floods issued by the Povodi, State Enterprise and from reports on estimates of damages caused by floods created by affected regions, adjusted by authors III: The real amount of flood damage per capita in the regions of the Czech Republic (CZK)1 1997(*) 1998 2000 2002 2006 2009 2010 Sum Rank Central Region 1.4 0.0 752.7 12 430.9 996.2 22.9 0.0 14204.0 6 Hradec Králové Region 820.5 3 073.9 2 756.4 0.0 0.4 56.3 0.0 6 707.5 9 Karlovy Vary Region 0.0 0.0 0.0 248.6 0.0 0.0 0.0 248.6 13 Liberec Region 64.7 0.0 1205.3 11.5 0.0 21.2 18 391.4 19694.1 2 Moravian-Silesian Region 8 735.8 0.0 0.0 0.0 0.0 2 502.1 3 284.8 14 522.7 5 Olomouc Region 8815.5 0.0 0.0 0.0 1315.1 5 658.7 1.6 15 790.9 4 Pardubice Region 1537.2 0.0 130.4 0.0 0.8 2.3 0.0 1670.7 11 Pilsen Region 0.0 0.0 0.0 6 886.4 0.0 10.6 0.0 6 896.9 8 South Bohemian Region 25.6 0.0 0.0 23 811.6 1165.1 1223.3 0.0 26225.6 1 South Moravian Region 531.2 0.0 0.0 416.6 928.3 13.5 270.5 2 160.0 10 Ústí Region 0.0 0.0 0.0 13 535.8 1072.2 679.9 2 269.3 17 557.2 3 Vysočina Region 321.5 0.0 0.0 354.9 239.7 80.0 0.0 996.0 12 Zlín Region 7 538.0 0.0 0.0 0.0 2 004.7 193.5 687.2 10423.4 7 Sum 28 391.4 3 073.9 4844.8 57 696.3 7722.5 10464.1 24904.8 Source: Data from the reports on the floods issued by the Povodí, State Enterprise, from reports on estimates of damages caused by floods created by affected regions and from Czech Statistical Office, adjusted by authors and use the relative values of damage per capita. Bohemian Region, Liberec Region and Ústí Region Another option was to use the indicator of damage are among the most affected regions. The greatest to area of region. But this relative indicator was not shift in rankings is possible to see in the case of suitable for analyzing the impact of the flood on the Liberec Region which was the sixth most affected economy of regions. Following Tab. Ill shows the region in terms of absolute damage, while in the real damage per capita. case per capita Liberec Region is the second most If we compare Tabs. II and III, it is evident that affected region. Great shift is also at the Moravian- the highest damage was in 2002 and in the years Silesian Region which was the most affected region 1997 and 2010. Regarding the affected regions, in absolute terms, whereas in the case per capita it is then in terms of damage per capita, the South only the fifth most affected region. 1 Prague is not in the table already. Prague was excluded from the analysis because of its specific status and economic conditions among regions in the Czech Republic (see above). Macroeconomic implication of the floods - a case study for the regions of the Czech Republic 293 B. Correlation analysis The dependence listed in Tab. IV was detected in the correlation analysis. From Table TV ambiguous dependence is obvious. However, this also results from the comparison of absolute indicators. Therefore, correlation analysis was performed for relative indicator in relation to capita, see Tab. V. From Tab. V it is clear, that except sales industry, correlation coefficients clearly show the direct or indirect dependence - for GDP and GFCF indirect and for unemployment direct dependence. However, from the results it is evident that for further analysis only data on GDP or GFCF give information about the relative impact of the floods on the economy of the region. Therefore, for the other analysis those indicators were only selected. However, it is necessary to draw attention to the fact that the determination of the dependence of the correlation coefficient is very weak in these indicators, which the significance level also proves. If we focus on the most affected regions, which Liberec Region, South Bohemian Region and Ústí Region are in accordance with Tab. Ill, then we could see that they are not among the regions which have the strongest dependence between amount of flood damage and economic indicators according to the correlation coefficients, especially in GDP. In the case of GFCF dependence is evident in South Bohemian Region. In the case of indicator of unemployment, then even two of the most affected regions (Liberec Region and Ústí Region) by the correlation coefficient have stronger linear relationship. In the case of the sales industry, Ústí Region exhibits stronger dependence. IV: Correlation coefficient for the dependence of flood damage GDP GFCF Unemployment Sales Industry Central Reeion -0.10028 -0.18490 0.21089 -0.34248 Hradec Králové Region -0.56411 -0.15028 -0.29731 -0.52013 Karlovy Vary Region -0.05120 0.04325 0.16421 -0.38236 Liberec Region 0.32182 -0.05134 0.44703 0.25334 Moravian-Silesian Reeion -0.15308 -0.06609 -0.54349 0.46887 Olomouc Region -0.14867 -0.11559 -0.26157 0.14083 Pardubice Region -0.47232 -0.31060 -0.54540 -0.57916 Pilsen Region -0.11433 -0.18550 0.14343 -0.34109 South Bohemian Region -0.07946 -0.41141 0.12594 -0.31147 South Moravian Region -0.00369 -0.11443 -0.18147 0.03882 Ústí Region -0.03839 -0.10010 0.31402 -0.34547 Vysočina Region -0.20690 -0.27000 -0.23752 -0.01743 Zlín Region -0.31451 -0.32654 -0.53798 0.34306 Total 0.06188 0.06841 0.03773 0.09262 Source: adjusted by authors V: Correlation coefficient for the dependence of flood damage per capita GDP per capita GFCF per capita Unemployment Sales Industry per capita Central Region -0.06453 -0.17466 0.21174 -0.33322 Hradec Králové Region -0.57058 -0.15462 -0.29718 -0.52429 Karlovy Vary Region -0.04339 0.04851 0.16421 -0.38016 Liberec Reeion 0.29544 -0.04714 0.44663 0.22984 Moravian-Silesian Region -0.14520 -0.07900 -0.54259 0.47469 Olomouc Region -0.15527 -0.12274 -0.26097 0.13552 Pardubice Region -0.47982 -0.31747 -0.54540 -0.58616 Pilsen Region -0.10340 -0.17783 0.14340 -0.34161 South Bohemian Region -0.07363 -0.40126 0.12559 -0.31111 South Moravian Region -0.00267 -0.11052 -0.18010 0.04053 Ústí Reeion -0.03470 -0.09268 0.31434 -0.34975 Vysočina Region -0.19917 -0.26193 -0.23574 -0.01241 Zlín Region -0.31321 -0.32875 -0.53744 0.34493 Total -0.09804 -0.06326 0.02395 0.01429 Source: adjusted by authors 294 J. Soukopová, L. Furová C. Impact of floods on GDP and GFCF In the following section, we only analyzed the impact of flood on GDP. Fig. 1 illustrates the change (increase, decrease) of real GDP (RGDP) per capita of the regions of the Czech Republic from 1995 to 2010. Fig. 1 shows that especially strong flood in 1997 had an impact on GDP. For all regions GDP significantly decreased compared to the previous year. Correlation analysis, however, did not confirm the influence of floods on GDP. In the case of more detailed analysis we find that data show the strongest impact of floods in Hradec Králové Region, Pardubice Region and Zlín Region. But these regions, except Zlín Region, however, were less affected by the floods, Pardubice Region even minimally. It is obvious that other factors had also effect on significant decline GDP in these regions. If we research the most affected regions, namely South Bohemian Region, Liberec Region and Ústí Region, see Fig. 2-4, and then also from these graphs unambiguous relationship between floods and changes in GDP are clear. Clearly, we can disprove the hypothesis HQ for the GDP that floods have a significant impact on long-term changes in the economic development of the region. The analysis shows that the relationship between the damage after floods and changes in GDP may exist, but only weak. Then we tested another economic indicator that suggested dependence - GFCF. It gives different results than GDP, see Table VI. If we consider the most affected regions, namely South Bohemian Region, Liberec Region and Ústí Region, only GFCF indicators of South Bohemian Region was clearly affected by floods. This is demonstrated by the following Fig. 5. Thus, in the case of GFCF we can reject the hypothesis, that the floods have a conclusively negative impact on long-run economic development of effected area. Analysis of economic Changes in RGDP and flood damage per capita 70000 CZK Flood damage • Karlovy Vary Region Moravskoslezský •Pilsen Region Vysočina Region Year •South Bohemian Region • Hradec Králové Region •Olomouc Region •Central Region Zlín Region •South Moravian Region • Liberec Region Pardubice Region •Ústí Region 1: Change in RGDP of the regions of the Czech Republic and flood damage per capita as the sum of damage of the regions Source: Data from the reports on the floods issued by the Povodi, State Enterprise, from reports on estimates of damages caused by floods created by affected regions and from Czech Statistical Office, adjusted by authors 2: Change in RGDP and flood damage per capita of South Bohemian Region Source: Data from the reports on the floods issued by the Povodi, State Enterprise, from reports on estimates of damages caused by floods created by affected regions and from Czech Statistical Office, adjusted by authors Macroeconomic implication of the floods - a case study for the regions of the Czech Republic 295 Liberec Region Year i flood damage Per. Cap. changes in RGDP 25000 CZK 3: Change in RGDP and flood damage per capita of Liberec Region Source: Data from the reports on the floods issued by the Povodi, State Enterprise, from reports on estimates of damages caused by floods created by affected regions and from Czech Statistical Office, adjusted by authors Ústí Region 20 15 10 5 0 -5 1995 1996 1997 199S 1999 2000 2001 /X^'—\/ v .......I J .........i 2005 2006 2007 200S 2009 2^) 2006 2007 200S 2009 Year i flood damage Per. Cap. 25000 20000 15000 10000 5000 0 CZK changes in RGDP 4: Change in RGDP and flood damage per capita of Ústí Region Source: Data from the reports on the floods issued by the Povodí, State Enterprise, from reports on estimates of damages caused by floods created by affected regions and from Czech Statistical Office, adjusted by authors VI: Correlation coefficient for the dependence of flood damage per capita and GDP per capita and GFCFper capita GDP per capita Rank GFCF per capita Rank Central Region -0.06453 9 -0.17466 6 Hradec Králové Region -0.57058 1 -0.15462 7 Karlovy Vary Region -0.04339 10 0.04851 13 Liberec Region 0.29544 13 -0.04714 12 Moravian-Silesian Region -0.14520 6 -0.07900 11 Olomouc Region -0.15527 5 -0.12274 8 Pardubice Region -0.47982 2 -0.31747 3 Pilsen Region -0.10340 7 -0.17783 5 South Bohemian Region -0.07363 8 -0.40126 1 South Moravian Region -0.00267 12 -0.11052 9 Ústí Region -0.03470 11 -0.09268 10 Vysočina Region -0.19917 4 -0.26193 4 Zlín Region -0.31321 3 -0.32875 2 Source: adjusted by authors fundamentals in each region has not confirmed the clear impact of floods on these variables. Overall, we can define their influence as neutral. Results of testing hypotheses (Lehman and Promano, 2005) correspond to a normal distribution. The analysis results confirm the conclusions of foreign studies dealing with the impact of natural disaster on economic growth. Already Albala -Bertrand said in 1993 that natural disaster have a neutral or positive short-run effect on economic growth. Similarly Skidmore and Toya (2002) 296 J. Soukopová, L. Furová GFCFand Flood damage GFCF (mil CZK) 120 000 100 000 80 000 60 000 40 000 20 000 ] .—. 60000 50000 40000 Flood 30000 damage (mil CZK) 20000 10000 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Flood damage •Karlovy Vary Region Moravskoslezský •Pilsen Region Vysočina Region Year -South Bohemian Region ■ - Hradec Králové Region • ■Olomouc Region • Central Region Zlín Region -South Moravian Region -Liberec Region Pardubice Region -Ústí Region 5: GFCF of the regions of the Czech Republic and Flood damage as the sum of damage of the regions Source: Data from the reports on the floods issued by the Povodi, State Enterprise, from reports on estimates of damages caused by floods created by affected regions and from Czech Statistical Office, flood damages are the sum of damages of regions of the Czech Republic adjusted by authors concluded that geological events have negative or neutral impact on long-run economic development of effected area. Raddatz (2009) had another opinion. According to him, climatic natural disasters (among which we can include floods) have a negative impact on economic development, while geological events do not play a significant role in economic development. Our results, however, disagree with the research Fomby et al. (2009) which demonstrated the positive effect of floods on economic growth as well Cuhado, Ferreira (2011), which confirm these results their research. However, both researches have assessed the impact of floods in the entire states, not regions and it could affect their results. CONCLUSION Many papers on the economics of natural disasters define severity of disaster as a function of the number of people killed or affected by floods. But in this paper is used flood damage as main indicator. We have used correlation analysis. As basic macroeconomic indicators for correlation analysis were selected: GDP, GFCF, industry sales and unemployment. All these indicators were identified by region and that as absolute and relative indicators. Our results show that flood shocks tend to have slightly negative or neutral impacts these indicators. We would expect, these neutral impact are not experienced on the year of the flood. We expect the delay in one or more years. Overall, it can be assumed that other extensive and intensive factors have a greater influence on economic growth. The question is, whether floods in the short and long-term period have an impact on domestic consumption, public budgets or debt service and thus affect aggregate demand and to what extent. It will be the subject matter of the future research priorities. SUMMARY The paper opens discussion about impact of floods on economic development of the Czech Republic. The aim of the paper is to analyse the economic impact of the floods on the regions in the Czech Republic and to discuss the relationship between floods and economic development. It is assessed on the basis of basic economic indicators of the region - GDP, gross fixed capital formation, industry sales, and unemployment. These variables are assessed as absolute and relative indicators, which are transferred per capita (with the exception of the unemployment rate). The paper uses data of GDP, GFCF, industry sales and unemployment from 13 regions of the Czech Republic between 1995 and 2010 to compute correlation of economic growth and flood events. Prague was excluded from the analysis because of its specific status (capital city and the region) and economic conditions among region in the Czech Republic. It was hypothesized: The floods have conclusively negative impact Macroeconomic implication of the floods - a case study for the regions of the Czech Republic 297 on long-run economic development of effected area. 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