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Economic development and losses due to natural disasters: the role of risk

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  • Ingmar Schumacher

    (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X)

  • Eric Strobl

    (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X)

Abstract

We show that the relationship between wealth and economic losses due to natural disasters is strongly linked to disaster risk. We first build an analytical model that demonstrates how countries that face a low hazard of disasters are likely to see first increasing losses and then decreasing ones with increasing economic development. At the same time, countries that face a high hazard of disasters are likely to experience first decreasing losses and then increasing ones with increasing economic development. We then use a cross country panel dataset in conjunction with a risk exposure index to investigate whether the data is consistent with the predictions from the model. As suggested by our model, we generally find an inverse ushaped link between losses and wealth for low and medium hazard countries, but a u-shaped relationship for high hazard countries.

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Bibliographic Info

Paper provided by HAL in its series Working Papers with number hal-00356286.

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Date of creation: Dec 2008
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Handle: RePEc:hal:wpaper:hal-00356286

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Related research

Keywords: Economic development; disasters; risk; uncertainty; hazard index;

References

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  1. Nejat Anbarci & Monica Escaleras & Charles A. Register, 2004. "Earthquake fatalities: the interaction of nature and political economy," Working Papers 0415, Florida International University, Department of Economics.
  2. Louis Eeckhoudt & Christian Gollier, 2005. "The impact of prudence on optimal prevention," Economic Theory, Springer, vol. 26(4), pages 989-994, November.
  3. Toya, Hideki & Skidmore, Mark, 2007. "Economic development and the impacts of natural disasters," Economics Letters, Elsevier, vol. 94(1), pages 20-25, January.
  4. Noy, Ilan, 2009. "The macroeconomic consequences of disasters," Journal of Development Economics, Elsevier, vol. 88(2), pages 221-231, March.
  5. Meyer, Jack & Ormiston, Michael B, 1989. " Deterministic Transformations of Random Variables and the Comparative Statics of Risk," Journal of Risk and Uncertainty, Springer, vol. 2(2), pages 179-88, June.
  6. Matthew E. Kahn, 2005. "The Death Toll from Natural Disasters: The Role of Income, Geography, and Institutions," The Review of Economics and Statistics, MIT Press, vol. 87(2), pages 271-284, May.
  7. Lewis, Tracy & Nickerson, David, 1989. "Self-insurance against natural disasters," Journal of Environmental Economics and Management, Elsevier, vol. 16(3), pages 209-223, May.
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