IDEAS home Printed from https://ideas.repec.org/a/spr/nathaz/v105y2021i3d10.1007_s11069-020-04402-0.html
   My bibliography  Save this article

The shocks of natural hazards on financial systems

Author

Listed:
  • Xia Chen

    (School of Economics and Management, Changsha University of Science and Technology)

  • Chun-Ping Chang

    (Shih Chien University)

Abstract

Using panel data consisting of 116 countries, this research investigates the effects of natural hazards on financial systems, including banking system, insurance system, and stock markets. Considering the moderating effects of financial risk, we introduce the interaction between natural hazards and financial risk and also analyze the heterogeneity of income level. Our main conclusions are as follows. (1) Though natural hazards do not significantly influence the banking system directly, they do impact the banking system through financial risk. The moderating effects of natural hazards on the banking system through financial risk are significantly negative. (2) The impacts of natural hazards on the insurance system are dynamic and last over a long period, while the moderating effects of natural hazards through financial risk are significantly negative. (3) The effects of natural hazards on the stock markets and the moderating effects through financial risk are significantly negative. (4) The negative effects of natural hazards on the financial system through financial risk are higher in low-income countries than those in high-income countries. From these results, we offer policy implications such as establishing a complete economic system and lowering the financial risk.

Suggested Citation

  • Xia Chen & Chun-Ping Chang, 2021. "The shocks of natural hazards on financial systems," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 105(3), pages 2327-2359, February.
    • Handle: RePEc:spr:nathaz:v:105:y:2021:i:3:d:10.1007_s11069-020-04402-0
    DOI: 10.1007/s11069-020-04402-0
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s11069-020-04402-0
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s11069-020-04402-0?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Cortés, Kristle Romero & Strahan, Philip E., 2017. "Tracing out capital flows: How financially integrated banks respond to natural disasters," Journal of Financial Economics, Elsevier, vol. 125(1), pages 182-199.
    2. Marie-Aude Laguna & Gunther Capelle-Blancard, 2010. "How does the stock market respond to petrochemical disasters?," Post-Print halshs-00696984, HAL.
    3. C Van Schoubroeck, 1997. "Legislation and Practice Concerning Natural Disasters and Insurance in a Number of European Countries*," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 22(2), pages 238-267, April.
    4. Denizer Cevdet A. & Iyigun Murat F. & Owen Ann, 2002. "Finance and Macroeconomic Volatility," The B.E. Journal of Macroeconomics, De Gruyter, vol. 2(1), pages 1-32, October.
    5. Klomp, Jeroen, 2014. "Financial fragility and natural disasters: An empirical analysis," Journal of Financial Stability, Elsevier, vol. 13(C), pages 180-192.
    6. Pradhan, Rudra P. & Arvin, Mak B. & Norman, Neville R., 2015. "Insurance development and the finance-growth nexus: Evidence from 34 OECD countries," Journal of Multinational Financial Management, Elsevier, vol. 31(C), pages 1-22.
    7. Borensztein, Eduardo & Cavallo, Eduardo & Jeanne, Olivier, 2017. "The welfare gains from macro-insurance against natural disasters," Journal of Development Economics, Elsevier, vol. 124(C), pages 142-156.
    8. Breckner, Miriam & Englmaier, Florian & Stowasser, Till & Sunde, Uwe, 2016. "Resilience to natural disasters — Insurance penetration, institutions, and disaster types," Economics Letters, Elsevier, vol. 148(C), pages 106-110.
    9. Dafermos, Yannis & Nikolaidi, Maria & Galanis, Giorgos, 2018. "Climate Change, Financial Stability and Monetary Policy," Ecological Economics, Elsevier, vol. 152(C), pages 219-234.
    10. Niepmann, Friederike & Schmidt-Eisenlohr, Tim, 2017. "International trade, risk and the role of banks," Journal of International Economics, Elsevier, vol. 107(C), pages 111-126.
    11. Laséen, Stefan & Pescatori, Andrea & Turunen, Jarkko, 2017. "Systemic risk: A new trade-off for monetary policy?," Journal of Financial Stability, Elsevier, vol. 32(C), pages 70-85.
    12. Xiaohui Liu & Peter Burridge & P. J. N. Sinclair, 2002. "Relationships between economic growth, foreign direct investment and trade: evidence from China," Applied Economics, Taylor & Francis Journals, vol. 34(11), pages 1433-1440.
    13. Toya, Hideki & Skidmore, Mark, 2007. "Economic development and the impacts of natural disasters," Economics Letters, Elsevier, vol. 94(1), pages 20-25, January.
    14. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
    15. Chun-Ping Chang & Li Wan Zhang, 2020. "Do Natural Disasters Increase Financial Risks? An Empirical Analysis," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 23(Special I), pages 61-86, January.
    16. Francesco Lamperti & Valentina Bosetti & Andrea Roventini & Massimo Tavoni, 2019. "The public costs of climate-induced financial instability," Nature Climate Change, Nature, vol. 9(11), pages 829-833, November.
    17. Subhani Keerthiratne & Richard S. J. Tol, 2017. "Impact of Natural Disasters on Financial Development," Economics of Disasters and Climate Change, Springer, vol. 1(1), pages 33-54, June.
    18. Ross Levine & Norman Loayza & Thorsten Beck, 2002. "Financial Intermediation and Growth: Causality and Causes," Central Banking, Analysis, and Economic Policies Book Series, in: Leonardo Hernández & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.),Banking, Financial Integration, and International Crises, edition 1, volume 3, chapter 2, pages 031-084, Central Bank of Chile.
    19. Kowalewski, Oskar & Śpiewanowski, Piotr, 2020. "Stock market response to potash mine disasters," Journal of Commodity Markets, Elsevier, vol. 20(C).
    20. Strobl, Eric, 2012. "The economic growth impact of natural disasters in developing countries: Evidence from hurricane strikes in the Central American and Caribbean regions," Journal of Development Economics, Elsevier, vol. 97(1), pages 130-141.
    21. Capelle-Blancard, Gunther & Laguna, Marie-Aude, 2010. "How does the stock market respond to chemical disasters?," Journal of Environmental Economics and Management, Elsevier, vol. 59(2), pages 192-205, March.
    22. Miao, Qing & Popp, David, 2014. "Necessity as the mother of invention: Innovative responses to natural disasters," Journal of Environmental Economics and Management, Elsevier, vol. 68(2), pages 280-295.
    23. Roger M. Shelor & Dwight C. Anderson & Mark L. Cross, 1990. "The Impact of the California Earthquake on Real Estate Firms' Stock Value," Journal of Real Estate Research, American Real Estate Society, vol. 5(3), pages 335-340.
    24. Felix Noth & Lena Tonzer, 2017. "Bank risk proxies and the crisis of 2007/09: a comparison," Applied Economics Letters, Taylor & Francis Journals, vol. 24(7), pages 498-501, April.
    25. Berg, Gunhild & Schrader, Jan, 2012. "Access to credit, natural disasters, and relationship lending," Journal of Financial Intermediation, Elsevier, vol. 21(4), pages 549-568.
    26. Beck, Thorsten, 2002. "Financial development and international trade: Is there a link?," Journal of International Economics, Elsevier, vol. 57(1), pages 107-131, June.
    27. Levine, Ross, 2005. "Finance and Growth: Theory and Evidence," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 12, pages 865-934, Elsevier.
    28. Charles Adjasi & Nicholas Biekpe, 2006. "Stock Market Development and Economic Growth: The Case of Selected African Countries," African Development Review, African Development Bank, vol. 18(1), pages 144-161.
    29. Jun Wen & Chun-Ping Chang, 2015. "Government ideology and the natural disasters: a global investigation," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 78(3), pages 1481-1490, September.
    30. repec:dau:papers:123456789/3187 is not listed on IDEAS
    31. Lin, Shu & Ye, Haichun, 2011. "The role of financial development in exchange rate regime choices," Journal of International Money and Finance, Elsevier, vol. 30(4), pages 641-659, June.
    32. Chiu, Yi-Bin & Lee, Chien-Chiang, 2019. "Financial development, income inequality, and country risk," Journal of International Money and Finance, Elsevier, vol. 93(C), pages 1-18.
    33. Maximilian Auffhammer, 2018. "Quantifying Economic Damages from Climate Change," Journal of Economic Perspectives, American Economic Association, vol. 32(4), pages 33-52, Fall.
    34. Yin, Haiyan, 2019. "Bank globalization and financial stability: International evidence," Research in International Business and Finance, Elsevier, vol. 49(C), pages 207-224.
    35. Carpentier, Cécile & Suret, Jean-Marc, 2015. "Stock market and deterrence effect: A mid-run analysis of major environmental and non-environmental accidents," Journal of Environmental Economics and Management, Elsevier, vol. 71(C), pages 1-18.
    36. Samargandi, Nahla & Fidrmuc, Jan & Ghosh, Sugata, 2015. "Is the Relationship Between Financial Development and Economic Growth Monotonic? Evidence from a Sample of Middle-Income Countries," World Development, Elsevier, vol. 68(C), pages 66-81.
    37. Sourav Batabyal & Abdur Chowdhury, 2015. "Curbing corruption, financial development and income inequality," Progress in Development Studies, , vol. 15(1), pages 49-72, January.
    38. Lee, Chien-Chiang & Chiu, Yi-Bin, 2012. "The impact of real income on insurance premiums: Evidence from panel data," International Review of Economics & Finance, Elsevier, vol. 21(1), pages 246-260.
    39. Mark J. Garmaise & Tobias J. Moskowitz, 2009. "Catastrophic Risk and Credit Markets," Journal of Finance, American Finance Association, vol. 64(2), pages 657-707, April.
    40. Barrett , Christopher B & Carter , Michael R & Ikegami , Munenobu, 2008. "Poverty traps and social protection," Social Protection Discussion Papers and Notes 42752, The World Bank.
    41. Hayam Wahba, 2008. "Exploring the moderating effect of financial performance on the relationship between corporate environmental responsibility and institutional investors: some Egyptian evidence," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 15(6), pages 361-371, November.
    42. Ulrich Schüwer & Claudia Lambert & Felix Noth, 2019. "How Do Banks React to Catastrophic Events? Evidence from Hurricane Katrina," Review of Finance, European Finance Association, vol. 23(1), pages 75-116.
    43. Reboredo, Juan C. & Rivera-Castro, Miguel A. & Ugolini, Andrea, 2016. "Downside and upside risk spillovers between exchange rates and stock prices," Journal of Banking & Finance, Elsevier, vol. 62(C), pages 76-96.
    44. Kellenberg, Derek K. & Mobarak, Ahmed Mushfiq, 2008. "Does rising income increase or decrease damage risk from natural disasters?," Journal of Urban Economics, Elsevier, vol. 63(3), pages 788-802, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Li, Boying & Zheng, Mingbo & Zhao, Xinxin & Chang, Chun-Ping, 2021. "An assessment of the effect of partisan ideology on shale gas production and the implications for environmental regulations," Economic Systems, Elsevier, vol. 45(3).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chen, Xia & Zhao, Xinxin & Chang, Chun-Ping, 2023. "The shocks of natural disasters on NPLs: Global evidence," Economic Systems, Elsevier, vol. 47(1).
    2. Pauline Avril & Gregory Levieuge & Camelia Turcu, 2021. "Natural Disasters and Financial Stress: Can Macroprudential Regulation Tame Green Swans?," Working Papers 2021.13, International Network for Economic Research - INFER.
    3. Brei, Michael & Mohan, Preeya & Strobl, Eric, 2019. "The impact of natural disasters on the banking sector: Evidence from hurricane strikes in the Caribbean," The Quarterly Review of Economics and Finance, Elsevier, vol. 72(C), pages 232-239.
    4. Berger, Allen N. & Molyneux, Phil & Wilson, John O.S., 2020. "Banks and the real economy: An assessment of the research," Journal of Corporate Finance, Elsevier, vol. 62(C).
    5. De Bandt Olivier, & Jacolin Luc, & Lemaire Thibault., 2021. "Climate Change in Developing Countries: Global Warming Effects,Transmission Channels and Adaptation Policies," Working papers 822, Banque de France.
    6. Shala, Iliriana & Schumacher, Benno, 2022. "The impact of natural disasters on banks' impairment flow: Evidence from Germany," Discussion Papers 36/2022, Deutsche Bundesbank.
    7. Rudra P. Pradhan & Mak B. Arvin & Sahar Bahmani & Sara E. Bennett & John H. Hall, 2017. "Insurance–growth nexus and macroeconomic determinants: evidence from middle-income countries," Empirical Economics, Springer, vol. 52(4), pages 1337-1366, June.
    8. Horvath, Roman, 2021. "Natural catastrophes and financial depth: An empirical analysis," Journal of Financial Stability, Elsevier, vol. 53(C).
    9. Roman Horvath, 2020. "Natural Catastrophes and Financial Development: An Empirical Analysis," Working Papers IES 2020/14, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised May 2020.
    10. Subhani Keerthiratne & Richard S. J. Tol, 2017. "Impact of Natural Disasters on Financial Development," Economics of Disasters and Climate Change, Springer, vol. 1(1), pages 33-54, June.
    11. Noth, Felix & Rehbein, Oliver, 2019. "Badly hurt? Natural disasters and direct firm effects," Finance Research Letters, Elsevier, vol. 28(C), pages 254-258.
    12. Pauline Avril & Gregory Levieuge & Camelia Turcu, 2023. "Do bankers want their umbrellas back when it rains? Evidence from typhoons in China," Working Papers 2023.08, International Network for Economic Research - INFER.
    13. Koetter, Michael & Noth, Felix & Rehbein, Oliver, 2020. "Borrowers under water! Rare disasters, regional banks, and recovery lending," Journal of Financial Intermediation, Elsevier, vol. 43(C).
    14. Zhang, Dayong & Managi, Shunsuke, 2020. "Financial development, natural disasters, and economics of the Pacific small island states," Economic Analysis and Policy, Elsevier, vol. 66(C), pages 168-181.
    15. Kakuho Furukawa & Hibiki Ichiue & Noriyuki Shiraki, 2020. "How Does Climate Change Interact with the Financial System? A Survey," Bank of Japan Working Paper Series 20-E-8, Bank of Japan.
    16. Noth, Felix & Schüwer, Ulrich, 2017. "Natural disasters and bank stability: Evidence from the U.S. financial system," VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168263, Verein für Socialpolitik / German Economic Association.
    17. Noth, Felix & Schüwer, Ulrich, 2018. "Natural disasters and bank stability: Evidence from the U.S. financial system," SAFE Working Paper Series 167, Leibniz Institute for Financial Research SAFE, revised 2018.
    18. Pradhan, Rudra P. & Arvin, Mak B. & Bahmani, Sahar & Hall, John H. & Norman, Neville R., 2017. "Finance and growth: Evidence from the ARF countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 66(C), pages 136-148.
    19. Noth, Felix & Schüwer, Ulrich, 2023. "Natural disasters and bank stability: Evidence from the U.S. financial system," Journal of Environmental Economics and Management, Elsevier, vol. 119(C).
    20. Wan-Li Zhang & Chun-Ping Chang & Yang Xuan, 2022. "The impacts of climate change on bank performance: What’s the mediating role of natural disasters?," Economic Change and Restructuring, Springer, vol. 55(3), pages 1913-1952, August.

    More about this item

    Keywords

    Natural hazards; Financial system; Moderating effects; Fixed effects model;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:nathaz:v:105:y:2021:i:3:d:10.1007_s11069-020-04402-0. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.