Natural disasters, climate change, and structural transformation: A new perspective from international trade

Natural disasters are well known to profoundly affect global economies, and they have received more and more discussions lately. However, it remains inconclusive how natural disasters would affect an economy in the long run. In this study, we empirically investigate the economic impacts of natural disasters under different time horizons. We use a difference‐in‐difference estimator and innovatively calculate a structural transformation index from the perspective of trade flows of a country's low‐ and high‐skill industries. We find that natural disasters, especially climate‐related disasters, will significantly cause a structural downgrade in the short run but are likely to be followed up by an upgrade in the long run when structural growth also features a diminishing rate of return. The impacts of natural disasters are also subject to the aggregate development level and trade openness of a country. For example, countries that are more developed, with higher income, or more engaged in international trade suffer less from natural disasters. As a result, their structural transformations are less affected by natural disasters than in developing, low‐income, or domestic‐oriented countries.