The high cost of low quality infrastructure when natural disasters strike

There is clear evidence embedded in the geological record of natural disasters such as volcanic activity, earthquakes, floods, hurricanes and the like striking earth for many millennia. Interestingly and for as yet unknown reasons, there has been a fourfold increase in such disasters over the last four decades. While the reason or reasons for this spike is yet to be understand (randomness, long-term trends or perhaps global warming), it has led to a great deal of research into the relationships between natural disasters and socio-economic factors. While many could be listed, research into whether disasters spawn public sector corruption, how effective mitigation actions such as tidal buoys and seismographs can prove to be, whether institutions such as property rights play a role in determining a disaster’s devastation and the impact of disasters on differing country’s economic growth serve as good examples. We add to this literature by considering the seemingly obvious relationship between the quality of a country’s infrastructure and deaths due to disasters which to date has not been tested as there has been no consistent, cross-country measure of infrastructure quality. To be sure, our expectation is that quality infrastructure mitigates disasters but it is this missing link in the research that we seek to fill. To provide a direct test of the importance of infrastructure, we consider 126 countries that experienced at least one natural disaster during the period 2005-2012. The data on disasters is taken from the EM-DAT archive, collected and maintained by the non-profit institution Centre for Research on the Epidemiology of Disasters (CRED). The uniqueness of the analysis is made possible by the use of the only consistent, cross-country measure of infrastructure quality recently made available by the World Economic Forum’s annual Global Competitiveness Report. Given that the key dependent variable throughout is a count of deaths, the empirical analyses are based on a series of Negative Binomial panel models. As expected, we find consistent, negative and strong statistically significant relationships between a country’s infrastructure quality and deaths due to disasters. Thus, the results suggest that when decision-making takes place within a country with respect to how its resources will be spent, investments in high-quality infrastructure will certainly yield positive returns when disasters strike. Similarly, governmental and non-governmental agencies that provide development assistance would well serve developing countries through loans and grants designed to provide funding for the development of high-quality infrastructure.