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Disasters and economic welfare : can national savings help explain post-disaster changes in consumption ?

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  • Mechler, Reinhard
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    Abstract

    The debate on whether natural disasters cause significant macroeconomic impacts and indeed hinder development is ongoing. Most analyses along these lines have focused on impacts on gross domestic product. This paper looks beyond this standard national accounting aggregate, and examines whether traditional and alternative national savings measures combined with adjustments for the destruction of capital stocks may contribute to better explaining post-disaster changes in welfare as measured by changes in consumption expenditure. The author concludes that including disaster asset losses may help to better explain variations in post-disaster consumption, albeit almost exclusively for the group of low-income countries. The observed effect is rather small and in the range of a few percent of the explained variation. For low-income countries, capital stock and changes therein, such as forced by disaster shocks, seem to play a more important role than for higher-income economies, where human capital and technological progress become crucial. There are important data constraints and uncertainties, particularly regarding the quality of disaster loss data and the shares of capital stock losses therein. Another important challenge potentially biasing the results is the lack of data on alternative savings measures for many disaster-exposed lower-income countries and small island states.

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    Bibliographic Info

    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4988.

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    Date of creation: 01 Jul 2009
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    Handle: RePEc:wbk:wbrwps:4988

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    Keywords: Hazard Risk Management; Natural Disasters; Economic Theory&Research; Emerging Markets;

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    1. Timothy D. Lane & Leslie Lipschitz & Cristina Arellano & Ales Bulir, 2005. "The Dynamic Implications of Foreign Aid and its Variability," IMF Working Papers 05/119, International Monetary Fund.
    2. Ilan Noy, 2007. "The Macroeconomic Consequences of Disasters," Working Papers, University of Hawaii at Manoa, Department of Economics 200707, University of Hawaii at Manoa, Department of Economics.
    3. Mark Skidmore & Hideki Toya, 2005. "Economic Development and the Impacts of Natural Disasters," Working Papers, UW-Whitewater, Department of Economics 05-04, UW-Whitewater, Department of Economics.
    4. Tobias N. Rasmussen, 2004. "Macroeconomic Implications of Natural Disasters in the Caribbean," IMF Working Papers 04/224, International Monetary Fund.
    5. Jose Miguel Albala-Bertrand, 2006. "The Unlikeliness of an Economic Catastrophe: Localization & Globalization," Working Papers, Queen Mary, University of London, School of Economics and Finance 576, Queen Mary, University of London, School of Economics and Finance.
    6. Albala-Bertrand, J. M., 1993. "Political Economy of Large Natural Disasters: With Special Reference to Developing Countries," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780198287650, October.
    7. Kirk Hamilton & John Hartwick, 2005. "Investing exhaustible resource rents and the path of consumption," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 38(2), pages 615-621, May.
    8. Mark Skidmore & Hideki Toya, 2002. "Do Natural Disasters Promote Long-Run Growth?," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 40(4), pages 664-687, October.
    9. Céline Charvériat, 2000. "Natural Disasters in Latin America and the Caribbean: An Overview of Risk," Research Department Publications, Inter-American Development Bank, Research Department 4233, Inter-American Development Bank, Research Department.
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    Cited by:
    1. Eduardo Cavallo & Ilan Noy, 2010. "The Aftermath of Natural Disasters: Beyond Destruction," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, Ifo Institute for Economic Research at the University of Munich, vol. 11(2), pages 25-35, 07.

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