Natural Disasters and Economic Resilience in Caribbean

Natural disasters are major threats to economic and human development, often leading to substantial disruptions in growth and welfare, particularly in developing countries. Focusing on twelve small island economies in the Caribbean, this paper examines the effects of natural disasters between 1992 and 2019 on key indicators of economic performance and development. Using a disaggregated empirical approach and satellite-based night-time light data, we estimate fixed-effects OLS models including a full set of country, region, and year effects, as well as country- and region-specific linear trends. The results indicate that natural disasters cause a significant contraction in local economic activity and in the rate of economic development. Complementary estimates from a Panel Vector Autoregression model show that these negative effects persist for up to four years after disaster events. Moreover, countries with higher income per capita, stronger institutions, greater political stability, and a higher degree of trade openness are found to be more resilient to disaster shocks. The study concludes by identifying structural factors that can strengthen macroeconomic resilience and by providing policy-relevant insights for mitigating the economic consequences of natural disasters.