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Economic development and losses due to natural disasters: the role of risk

Author

Listed:
  • Ingmar Schumacher

    (Department of Economics, Ecole Polytechnique - X - École polytechnique - CNRS - Centre National de la Recherche Scientifique)

  • Eric Strobl

    (Department of Economics, Ecole Polytechnique - X - École polytechnique - CNRS - Centre National de la Recherche Scientifique)

Abstract

We show that the relationship between wealth and economic losses due to natural disasters is strongly linked to disaster risk. We first build an analytical model that demonstrates how countries that face a low hazard of disasters are likely to see first increasing losses and then decreasing ones with increasing economic development. At the same time, countries that face a high hazard of disasters are likely to experience first decreasing losses and then increasing ones with increasing economic development. We then use a cross country panel dataset in conjunction with a risk exposure index to investigate whether the data is consistent with the predictions from the model. As suggested by our model, we generally find an inverse ushaped link between losses and wealth for low and medium hazard countries, but a u-shaped relationship for high hazard countries.

Suggested Citation

  • Ingmar Schumacher & Eric Strobl, 2008. "Economic development and losses due to natural disasters: the role of risk," Working Papers hal-00356286, HAL.
  • Handle: RePEc:hal:wpaper:hal-00356286
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00356286
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    References listed on IDEAS

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    1. Noy, Ilan, 2009. "The macroeconomic consequences of disasters," Journal of Development Economics, Elsevier, vol. 88(2), pages 221-231, March.
    2. Toya, Hideki & Skidmore, Mark, 2007. "Economic development and the impacts of natural disasters," Economics Letters, Elsevier, vol. 94(1), pages 20-25, January.
    3. Louis Eeckhoudt & Christian Gollier, 2005. "The impact of prudence on optimal prevention," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 26(4), pages 989-994, November.
    4. Meyer, Jack & Ormiston, Michael B, 1989. "Deterministic Transformations of Random Variables and the Comparative Statics of Risk," Journal of Risk and Uncertainty, Springer, vol. 2(2), pages 179-188, June.
    5. Matthew E. Kahn, 2005. "The Death Toll from Natural Disasters: The Role of Income, Geography, and Institutions," The Review of Economics and Statistics, MIT Press, vol. 87(2), pages 271-284, May.
    6. Lewis, Tracy & Nickerson, David, 1989. "Self-insurance against natural disasters," Journal of Environmental Economics and Management, Elsevier, vol. 16(3), pages 209-223, May.
    7. Anbarci, Nejat & Escaleras, Monica & Register, Charles A., 2005. "Earthquake fatalities: the interaction of nature and political economy," Journal of Public Economics, Elsevier, vol. 89(9-10), pages 1907-1933, September.
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    Citations

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    Cited by:

    1. Schumacher, Ingmar & Strobl, Eric, 2011. "Economic development and losses due to natural disasters: The role of hazard exposure," Ecological Economics, Elsevier, vol. 72(C), pages 97-105.
    2. Sebastián J. Miller & Sebastián Galiani & Omar O. Chisari, 2013. "Optimal Adaptation and Mitigation to Climate Change in Small Environmental Economies," IDB Publications (Working Papers) 4668, Inter-American Development Bank.
    3. Yang Zhou & Yansui Liu & Wenxiang Wu & Ning Li, 2015. "Integrated risk assessment of multi-hazards in China," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 78(1), pages 257-280, August.

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