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Foreign Aid Concentration and Natural Disasters


  • Subhani Keerthiratne

    () (Central Bank of Sri Lanka, Colombo)

  • Richard S.J. Tol

    () (Department of Economics, University of Sussex
    Department of Spatial Economics, Vrije Universiteit, Amsterdam
    Institute for Environmental Studies, Vrije Universiteit, Amsterdam
    Tinbergen Institute, Amsterdam)


We examine the impact of natural disasters on the concentration of development aid, using country-level panel data. Employed disaster indices are purely based on physical intensities of disasters, thus overcome the common issue of endogeneity in natural disaster data. Countries receive more disaster-related foreign aid in the aftermath of natural catastrophes. Beyond that, natural disasters lead to a diversification of types of aid received and a diversification of the number of donors. This is true in the immediate aftermath of the disaster, and continues long after. Our findings are robust to additional controls, alternative estimators, measures and data. The literature on the fragmentation of aid shows that, typically, aid is less effective in promoting economic development when it comes from many sources and is spread over many programmes. The paper thus shows that, besides the negative effect on economic growth, natural disasters also have a negative impact on development aid.

Suggested Citation

  • Subhani Keerthiratne & Richard S.J. Tol, 2018. "Foreign Aid Concentration and Natural Disasters," Working Paper Series 0218, Department of Economics, University of Sussex Business School.
  • Handle: RePEc:sus:susewp:0218

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    References listed on IDEAS

    1. Anderson, Edward, 2012. "Aid fragmentation and donor transaction costs," Economics Letters, Elsevier, vol. 117(3), pages 799-802.
    2. Noy, Ilan, 2009. "The macroeconomic consequences of disasters," Journal of Development Economics, Elsevier, vol. 88(2), pages 221-231, March.
    3. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    4. Eduardo Cavallo & Sebastian Galiani & Ilan Noy & Juan Pantano, 2013. "Catastrophic Natural Disasters and Economic Growth," The Review of Economics and Statistics, MIT Press, vol. 95(5), pages 1549-1561, December.
    5. Jinhwan Oh & Yunjeong Kim, 2015. "Proliferation and fragmentation: uphill struggle of aid effectiveness," Journal of Development Effectiveness, Taylor & Francis Journals, vol. 7(2), pages 192-209, June.
    6. Felbermayr, Gabriel & Gröschl, Jasmin, 2014. "Naturally negative: The growth effects of natural disasters," Journal of Development Economics, Elsevier, vol. 111(C), pages 92-106.
    7. Arnab Acharya & Ana Teresa Fuzzo de Lima & Mick Moore, 2006. "Proliferation and fragmentation: Transactions costs and the value of aid," Journal of Development Studies, Taylor & Francis Journals, vol. 42(1), pages 1-21.
    8. Iñaki Aldasoro & Peter Nunnenkamp & Rainer Thiele, 2010. "Less aid proliferation and more donor coordination? The wide gap between words and deeds," Journal of International Development, John Wiley & Sons, Ltd., vol. 22(7), pages 920-940.
    9. Cavallo, Eduardo & Noy, Ilan, 2011. "Natural Disasters and the Economy — A Survey," International Review of Environmental and Resource Economics, now publishers, vol. 5(1), pages 63-102, May.
    10. Andy Sumner & Jonathan Glennie, 2015. "Growth, Poverty and Development Assistance: When Does Foreign Aid Work?," Global Policy, London School of Economics and Political Science, vol. 6(3), pages 201-211, September.
    11. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
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    More about this item


    natural disasters; foreign aid;

    JEL classification:

    • F35 - International Economics - - International Finance - - - Foreign Aid
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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