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Coping With Disaster: The Impact of Hurricanes on International Financial Flows, 1970-2001

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Author Info
Dean Yang (University of Michigan)

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Abstract

How well do countries cope with the aftermath of natural disasters? In particular, how well do international financial flows buffer economic losses from disasters? This paper focuses on hurricanes (one of the most common and destructive types of disasters), and examines the impact of hurricane damages on resource flows to affected countries. Due to the potential endogeneity of disaster damage, I exploit instrumental variables constructed from meteorological data on hurricanes. Instrumental variables estimates indicate that disaster damages lead to increases in national-level net inflows of migrants’ remittances, foreign lending, and foreign direct investment. These types of flows respond rapidly, within the first year after damages. Official development assistance (ODA) also responds positively to hurricane damage, but with a lag of roughly two years. On average, total inflows from these sources within the following four years amount to roughly four-fifths of estimated damages. The null hypothesis of full insurance of hurricane disaster damages cannot be rejected. By contrast, ordinary least squares estimates find essentially no response of international flows to disaster damages, highlighting the importance of an instrumental variables approach in this context.

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Paper provided by Research Seminar in International Economics, University of Michigan in its series Working Papers with number 534.

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Length: 39 pages
Date of creation: 2005
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Handle: RePEc:mie:wpaper:534

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Related research
Keywords: risk-sharing; insurance; official development assistance; foreign aid; remittances; foreign direct investment; international lending; natural disasters; hurricanes;

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Find related papers by JEL classification:
F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
F22 - International Economics - - International Factor Movements and International Business - - - International Migration
F34 - International Economics - - International Finance - - - International Lending and Debt Problems
F35 - International Economics - - International Finance - - - Foreign Aid
O19 - Economic Development, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters

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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. David Hofman & Patricia Brukoff, 2006. "Insuring Public Finances Against Natural Disasters--A Survey of Options and Recent Initiatives," IMF Working Papers 06/199, International Monetary Fund. [Downloadable!]
  2. Paul A. Raschky & Manijeh Schwindt, . "Aid, Catastrophes and the Samaritan's Dilemma," Working Papers 2008-06, Faculty of Economics and Statistics, University of Innsbruck. [Downloadable!]
  3. Attzs, Marlene, 2008. "Natural Disasters and Remittances: Exploring the Linkages between Poverty, Gender, and Disaster Vulnerability in Caribbean SIDS," Working Papers RP2008/61, World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
  4. Dean Yang, 2006. "Why Do Migrants Return to Poor Countries? Evidence From Philippine Migrants%u2019 Responses to Exchange Rate Shocks," NBER Working Papers 12396, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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