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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)

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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File URL: http://fordschool.umich.edu/rsie/workingpapers/Papers526-550/r534.pdf
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Bibliographic Info

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
Date of revision:
Handle: RePEc:mie:wpaper:534

Contact details of provider:
Postal: ANN ARBOR MICHIGAN 48109
Web page: http://www.fordschool.umich.edu/rsie/
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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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References

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Cited by:
  1. Ratha, Dilip & Mohapatra, Sanket & Scheja, Elina, 2011. "Impact of migration on economic and social development : a review of evidence and emerging issues," Policy Research Working Paper Series 5558, The World Bank.
  2. Frankel, Jeffrey, 2010. "Are Bilateral Remittances Countercylical?," Working Paper Series rwp10-037, Harvard University, John F. Kennedy School of Government.
  3. Eduardo Cavallo & Ilan Noy, 2010. "The Aftermath of Natural Disasters: Beyond Destruction," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 11(2), pages 25-35, 07.
  4. Dorothee Crayen & Christa Hainz & Christiane Ströh de Martínez, 2011. "Zur Versicherungsfunktion von Rücküberweisungen von Migranten: Eine Untersuchung in Südafrika," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 64(10), pages 17-21, 05.

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