Economic impact of monsoon flood on the household income in Malaysia: A two-level analysis

Abstract

Malaysia is located in the north of the equator and composed of two regions which are peninsular Malaysia and east Malaysia. The country is characterized by southwest monsoon which is the drier weather that start from late May to September and northwest monsoon that start from November to March. The Northwest monsoon comes with heavy rains in Peninsular Malaysia, and it usually leads to floods. Floods can have a lot of negative socio-economic impacts on the country such as loss of livelihood and a decrease in purchasing power and production, which subsequently affect the country’s economic growth and development. The objective of this study is to investigate the economic impact of monsoon floods on the household income in Malaysia and across its states. The data used in this study were obtained from the Department of Statistics Malaysia and the Department of Irrigation and Drainage Malaysia. The study period covered by the study is from 2016 to 2021. The method used in this study is the panel data regression analysis, which includes the pooled OLS, fixed effect, random effect, and robust model. The result reveals that monsoon flood has a negative impact on household income both at aggregate and disaggregate levels. At Malaysia’s level, the number of floods shows a negative impact on household income. While at the state level, the result shows that some of the states such as Kedah, Kelantan, Negeri Sembilan, Pahang, Perak, Perlis, Sabah, Sarawak, Selangor, Terengganu and Wilayah Persekutuan Kuala Lumpur are significantly negatively affected. Meanwhile, the states of Johor, Melaka, Pulau Pinang and Wilayah Persekutuan Labuan, are not negatively affected. As such, it is recommended that the responsible authority, such as the government and policymakers should enhance their monsoon flood preparedness and mitigation programs.