IDEAS home Printed from https://ideas.repec.org/p/bis/biswps/1175.html
   My bibliography  Save this paper

Unmitigated disasters? Risk-sharing and macroeconomic recovery in a large international panel

Author

Listed:
  • Goetz von Peter
  • Sebastian von Dahlen
  • Sweta C Saxena

Abstract

This paper examines the patterns of macroeconomic recovery following natural disasters. In a panel with global coverage from 1960 to 2011, we make use of insurer-assessed losses to estimate growth responses conditional on risk transfer. We find that major disasters reduce growth by 1 to 2 percentage points on impact, and over time produce an output cost of 2% to 4% of GDP, on top of the initial damage to property and infrastructure. Akin to wars and financial crises, natural disasters have permanent effects, in the sense that output losses are not fully recovered over time. But it is the uninsured losses that drive the macroeconomic cost; insured losses are less consequential in the aggregate, and can even stimulate growth. By helping to finance the recovery, insurance mitigates the macroeconomic cost of disasters. Many countries lack the capacity to (re)insure themselves and would stand to benefit from international risk sharing.

Suggested Citation

  • Goetz von Peter & Sebastian von Dahlen & Sweta C Saxena, 2024. "Unmitigated disasters? Risk-sharing and macroeconomic recovery in a large international panel," BIS Working Papers 1175, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:1175
    as

    Download full text from publisher

    File URL: https://www.bis.org/publ/work1175.pdf
    File Function: Full PDF document
    Download Restriction: no
    File URL: https://www.bis.org/publ/work1175.htm
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Noy, Ilan, 2009. "The macroeconomic consequences of disasters," Journal of Development Economics, Elsevier, vol. 88(2), pages 221-231, March.
    2. World Bank & United Nations, 2010. "Natural Hazards, UnNatural Disasters : The Economics of Effective Prevention," World Bank Publications - Books, The World Bank Group, number 2512, December.
    3. 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.
    4. Christopher A. Sims & Tao Zha, 1999. "Error Bands for Impulse Responses," Econometrica, Econometric Society, vol. 67(5), pages 1113-1156, September.
    5. Carmen M. Reinhart & Kenneth S. Rogoff, 2014. "Recovery from Financial Crises: Evidence from 100 Episodes," American Economic Review, American Economic Association, vol. 104(5), pages 50-55, May.
    6. W J Wouter Botzen & Olivier Deschenes & Mark Sanders, 2019. "The Economic Impacts of Natural Disasters: A Review of Models and Empirical Studies," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 13(2), pages 167-188.
    7. Martin L. Weitzman, 2009. "On Modeling and Interpreting the Economics of Catastrophic Climate Change," The Review of Economics and Statistics, MIT Press, vol. 91(1), pages 1-19, February.
    8. Robert J. Barro, 2006. "Rare Disasters and Asset Markets in the Twentieth Century," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 121(3), pages 823-866.
    9. Felbermayr, Gabriel & Gröschl, Jasmin, 2014. "Naturally negative: The growth effects of natural disasters," Journal of Development Economics, Elsevier, vol. 111(C), pages 92-106.
    10. 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.
    11. Raddatz, Claudio, 2007. "Are external shocks responsible for the instability of output in low-income countries?," Journal of Development Economics, Elsevier, vol. 84(1), pages 155-187, September.
    12. Eduardo Cavallo & Andrew Powell & Oscar Becerra, 2010. "Estimating the Direct Economic Damages of the Earthquake in Haiti," Economic Journal, Royal Economic Society, vol. 120(546), pages 298-312, August.
    13. J. David Cummins & Olivier Mahul, 2009. "Catastrophe Risk Financing in Developing Countries : Principles for Public Intervention," World Bank Publications - Books, The World Bank Group, number 6289, December.
    14. Xavier Gabaix, 2012. "Variable Rare Disasters: An Exactly Solved Framework for Ten Puzzles in Macro-Finance," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 127(2), pages 645-700.
    15. Hiro Ito & Robert N. McCauley, 2022. "A Disaster Under-(Re)Insurance Puzzle: Home Bias in Disaster Risk-Bearing," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 70(4), pages 735-772, December.
    16. Hill, Ruth Vargas & Kumar, Neha & Magnan, Nicholas & Makhija, Simrin & de Nicola, Francesca & Spielman, David J. & Ward, Patrick S., 2019. "Ex ante and ex post effects of hybrid index insurance in Bangladesh," Journal of Development Economics, Elsevier, vol. 136(C), pages 1-17.
    17. Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
    18. Thomas K.J. McDermott & Frank Barry & Richard S.J. Tol, 2014. "Disasters and development: natural disasters, credit constraints, and economic growth," Oxford Economic Papers, Oxford University Press, vol. 66(3), pages 750-773.
    19. Mr. Fabian Valencia & Mr. Luc Laeven, 2012. "Systemic Banking Crises Database: An Update," IMF Working Papers 2012/163, International Monetary Fund.
    20. Stern,Nicholas, 2007. "The Economics of Climate Change," Cambridge Books, Cambridge University Press, number 9780521700801.
    21. Thomas Eisensee & David Strömberg, 2007. "News Droughts, News Floods, and U. S. Disaster Relief," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 122(2), pages 693-728.
    22. Lisa Doyle & Ilan Noy, 2015. "The short-run nationwide macroeconomic effects of the Canterbury earthquakes," New Zealand Economic Papers, Taylor & Francis Journals, vol. 49(2), pages 134-156, August.
    23. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-1426, November.
    24. Cavallo, Eduardo & Noy, Ilan, 2011. "Natural Disasters and the Economy — A Survey," International Review of Environmental and Resource Economics, now publishers, vol. 5(1), pages 63-102, May.
    25. Kunreuther, Howard C. & Michel-Kerjan, Erwann O., 2011. "At War with the Weather: Managing Large-Scale Risks in a New Era of Catastrophes," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262516543, December.
    26. Eduardo Cavallo & Andrew Powell & Oscar Becerra, 2010. "Estimating the Direct Economic Damages of the Earthquake in Haiti," Economic Journal, Royal Economic Society, vol. 120(546), pages 298-312, 08.
    27. Francois Gourio, 2008. "Disasters and Recoveries," American Economic Review, American Economic Association, vol. 98(2), pages 68-73, May.
    Full references (including those not matched with items on IDEAS)

    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. Goetz von Peter & Sebastian von Dahlen & Sweta C Saxena, 2012. "Unmitigated disasters? New evidence on the macroeconomic cost of natural catastrophes," BIS Working Papers 394, Bank for International Settlements.
    2. 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.
    3. Eduardo Cavallo & Ilan Noy, 2009. "The Economics of Natural Disasters: A Survey," Research Department Publications 4649, Inter-American Development Bank, Research Department.
    4. Lazzaroni, Sara & van Bergeijk, Peter A.G., 2014. "Natural disasters' impact, factors of resilience and development: A meta-analysis of the macroeconomic literature," Ecological Economics, Elsevier, vol. 107(C), pages 333-346.
    5. Matteo Coronese & Davide Luzzati, 2022. "Economic impacts of natural hazards and complexity science: a critical review," LEM Papers Series 2022/13, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    6. Sven Kunze, 2021. "Unraveling the Effects of Tropical Cyclones on Economic Sectors Worldwide: Direct and Indirect Impacts," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 78(4), pages 545-569, April.
    7. Ivan Faiella & Filippo Natoli, 2018. "Natural catastrophes and bank lending: the case of flood risk in Italy," Questioni di Economia e Finanza (Occasional Papers) 457, Bank of Italy, Economic Research and International Relations Area.
    8. Pauline AVRIL & Grégory LEVIEUGE & Camélia TURCU, 2021. "Natural Disasters and Financial Stress: Can Macroprudential Regulation Tame Green Swans?," LEO Working Papers / DR LEO 2913, Orleans Economics Laboratory / Laboratoire d'Economie d'Orleans (LEO), University of Orleans.
    9. Kunze, Sven, 2020. "Unraveling the effects of tropical cyclones on economic sectors worldwide," Working Papers 0685, University of Heidelberg, Department of Economics.
    10. Ferreira, Susana, 2024. "Extreme Weather Events and Climate Change: Economic Impacts and Adaptation Policies," IZA Discussion Papers 16715, Institute of Labor Economics (IZA).
    11. Bashar, Omar & Mallick, Debdulal, 2021. "Frequency of Shocks, Resilience and Shock Persistence: Evidence from Natural Disasters," MPRA Paper 107517, University Library of Munich, Germany.
    12. Vikrant Panwar & Subir Sen, 2019. "Economic Impact of Natural Disasters: An Empirical Re-examination," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 13(1), pages 109-139, February.
    13. Evgenidis, Anastasios & Hamano, Masashige & Vermeulen, Wessel N., 2021. "Economic consequences of follow-up disasters: Lessons from the 2011 Great East Japan Earthquake," Energy Economics, Elsevier, vol. 104(C).
    14. Peter A. G. van Bergeijk & Sara Lazzaroni, 2015. "Macroeconomics of Natural Disasters: Strengths and Weaknesses of Meta‐Analysis Versus Review of Literature," Risk Analysis, John Wiley & Sons, vol. 35(6), pages 1050-1072, June.
    15. Hiroki Onuma & Kong Joo Shin & Shunsuke Managi, 2021. "Short-, Medium-, and Long-Term Growth Impacts of Catastrophic and Non-catastrophic Natural Disasters," Economics of Disasters and Climate Change, Springer, vol. 5(1), pages 53-70, April.
    16. Gregory, Richard P., 2021. "Climate disasters, carbon dioxide, and financial fundamentals," The Quarterly Review of Economics and Finance, Elsevier, vol. 79(C), pages 45-58.
    17. Erwann Michel-Kerjan, 2013. "Finance des risques catastrophiques. Le marché américain est en plein bouleversement," Revue économique, Presses de Sciences-Po, vol. 64(4), pages 615-634.
    18. Felbermayr, Gabriel & Gröschl, Jasmin, 2014. "Naturally negative: The growth effects of natural disasters," Journal of Development Economics, Elsevier, vol. 111(C), pages 92-106.
    19. Camille Saint-Macary & Claire Zanuso, 2015. "Build back better? Long-lasting impact of the 2010 Earthquake in Haiti," Working Papers DT/2015/15, DIAL (Développement, Institutions et Mondialisation).
    20. 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.

    More about this item

    Keywords

    natural disasters; growth; recovery; risk transfer; reinsurance; development;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:bis:biswps:1175. 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: Christian Beslmeisl (email available below). General contact details of provider: https://edirc.repec.org/data/bisssch.html .

    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.