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Integrating Out Natural Disaster Shocks

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  • Franziska Bremus
  • Malte Rieth

Abstract

We study the role of international financial integration in buffering natural disaster shocks, using a large sample of advanced and emerging economies. Conditioning on such exogenous events addresses the endogeneity between financial structures and economic conditions. We document that integration improves shock absorption: output, consumption, and investment are significantly higher after a shock in states of high integration than in states of low integration. However, the benefits of international risk sharing mostly come to advanced economies. Emerging markets only profit from more integration if they have good institutions or high debt assets, whereas higher debt liabilities weaken the recovery.

Suggested Citation

  • Franziska Bremus & Malte Rieth, 2023. "Integrating Out Natural Disaster Shocks," Discussion Papers of DIW Berlin 2063, DIW Berlin, German Institute for Economic Research.
    • Handle: RePEc:diw:diwwpp:dp2063
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    References listed on IDEAS

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    More about this item

    Keywords

    Financial integration; natural disasters; international risk sharing; dynamic panel model; emerging markets;
    All these keywords.

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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