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Do Natural Disasters Promote Long-Run Growth?

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  • Mark Skidmore
  • Hideki Toya

Abstract

In this article, we investigate the long-run relationships among disasters, capital accumulation, total factor productivity, and economic growth. The cross-country empirical analysis demonstrates that higher frequencies of climatic disasters are correlated with higher rates of human capital accumulation, increases in total factor productivity, and economic growth. Though disaster risk reduces the expected rate of return to physical capital, risk also serves to increase the relative return to human capital. Thus, physical capital investment may fall, but there is also a substitution toward human capital investment. Disasters also provide the impetus to update the capital stock and adopt new technologies, leading to improvements in total factor productivity. Copyright 2002, Oxford University Press.

Suggested Citation

  • Mark Skidmore & Hideki Toya, 2002. "Do Natural Disasters Promote Long-Run Growth?," Economic Inquiry, Western Economic Association International, vol. 40(4), pages 664-687, October.
    • Handle: RePEc:oup:ecinqu:v:40:y:2002:i:4:p:664-687
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