THE GROWTH AFTERMATH OF NATURAL DISASTERS

• Published in: Journal of applied econometrics (Chichester, England) England), 2013-04, Vol.28 (3), p.412-434
• Main Authors: Fomby, Thomas, Ikeda, Yuki, Loayza, Norman V.
• Format: Article
• Language: English
• Subjects: Cross-national analysis; Disasters; Econometrics; Economic activity; Economic growth; Economic shock; GDP; Gross Domestic Product; Natural disasters; Regression analysis; Studies; Time series; Vector-autoregressive models
• ISSN: 0883-7252; 1099-1255
• DOI: 10.1002/jae.1273

This paper traces the yearly response of gross domestic product growth—both aggregated and disaggregated into its agricultural and non-agricultural components—to four types of natural disasters: droughts, floods, earthquakes, and storms. The paper uses a methodological approach based on pooling the experiences of various countries over time. It consists of vector autoregressions in the presence of endogenous variables and exogenous shocks (VARX), applied to a panel of cross-country and time series data. The analysis finds heterogeneous effects on a variety of dimensions. First, the effects of natural disasters are stronger on developing than on advanced countries. Second, not all natural disasters are alike in terms of the growth response they induce, and some can even have positive effects on economic growth. Third, severe disasters often carry much worse effects than moderate effects do. Fourth, the timing of the growth response varies with both the type of natural disaster and the sector of economic activity.