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Relevance of financial development and fiscal stability in dealing with disasters in Emerging Economies

Author

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  • Valeria Terrones

    (Department of Economics, University of Sussex, BN1 9SL Falmer, United Kingdom)

  • Richard S.J. Tol

    (Department of Economics, University of Sussex, BN1 9SL Falmer, United Kingdom)

Abstract

The present research highlights the relevance of financial development and fiscal stability to deal with extreme events in emerging countries. McDermott, Barry, and Tol (2014) find that extreme events have persistent negative effects in the medium term in countries with low levels of financial development. In addition to this result, the role of fiscal stability in economic growth when severe events occur is studied in the present document. We find that both are relevant in the case of emerging economies, and policies have to be oriented on both fronts. A specific financial instrument, catastrophic bonds, has contributed to avoiding a negative impact on economic growth in advanced economies between its creation in 1997 and 2020, which suggests a feasible alternative for emerging economies.

Suggested Citation

  • Valeria Terrones & Richard S.J. Tol, 2022. "Relevance of financial development and fiscal stability in dealing with disasters in Emerging Economies," Working Paper Series 0722, Department of Economics, University of Sussex Business School.
    • Handle: RePEc:sus:susewp:0722
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    3. Richard S. J. Tol, 2022. "State capacity and vulnerability to natural disasters," Chapters, in: Mark Skidmore (ed.), Handbook on the Economics of Disasters, chapter 20, pages 434-457, Edward Elgar Publishing.
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    Cited by:

    1. Zhai, Wei, 2023. "Risk assessment of China's foreign direct investment in "One Belt, One Road": Taking the green finance as a research perspective," Socio-Economic Planning Sciences, Elsevier, vol. 87(PB).

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    More about this item

    Keywords

    Disasters · Financial development · Fiscal stability · Catastrophe bonds · Disaster risk management · Climate change;

    JEL classification:

    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • G00 - Financial Economics - - General - - - General
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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