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Natural disasters and growth - going beyond the averages

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Author Info
Loayza, Norman
Olaberria, Eduardo
Rigolini, Jamele
Christiaensen, Luc
Abstract

There has been a steady increase in the occurrence of natural disasters. Yet their effect on economic growth remains unclear, with some studies reporting negative, and others indicating no, or even positive effects. These seemingly contradictory findings can be reconciled by exploring the effects of natural disasters on growth separately by disaster and economic sector. This is consistent with the insights from traditional models of economic growth, where production depends on total factor productivity, the provision of intermediate outputs, and the capital-labor ratio, as well as the existence of important intersector linkages. Applying a dynamic Generalized Method of Moments panel estimator to a 1961-2005 cross-country panel, three major insights emerge. First, disasters affect economic growth - but not always negatively, and differently across disasters and economic sectors. Second, although moderate disasters can have a positive growth effect in some sectors, severe disasters do not. Third, growth in developing countries is more sensitive to natural disasters - more sectors are affected and the magnitudes are non-trivial.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4980.

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Date of creation: 01 Jun 2009
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Handle: RePEc:wbk:wbrwps:4980

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Keywords: Natural Disasters; Disaster Management; Hazard Risk Management; Achieving Shared Growth; Economic Conditions and Volatility;

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  5. Luc J. Christiaensen & Kalanidhi Subbarao, 2005. "Towards an Understanding of Household Vulnerability in Rural Kenya," Journal of African Economies, Oxford University Press, vol. 14(4), pages 520-558, December.
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  8. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August. [Downloadable!] (restricted)
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  9. Crespo Cuaresma & Hlouskova & Obersteiner, 2008. "Natural Disasters As Creative Destruction? Evidence From Developing Countries," Economic Inquiry, Western Economic Association International, vol. 46(2), pages 214-226, 04. [Downloadable!] (restricted)
  10. Toya, Hideki & Skidmore, Mark, 2007. "Economic development and the impacts of natural disasters," Economics Letters, Elsevier, vol. 94(1), pages 20-25, January. [Downloadable!] (restricted)
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  11. David Dollar & Aart Kraay, 2004. "Trade, Growth, and Poverty," Economic Journal, Royal Economic Society, vol. 114(493), pages F22-F49, 02. [Downloadable!] (restricted)
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