Natural Disaster, Infrastructure, and Income Distribution : Empirical Evidence from Global Data

Natural disasters—such as flooding, hurricanes, and earthquakes—have, on average, affected 130million people and caused more than 40,000 deaths annually worldwide over the past three decades. The average annualvalue of property damage is estimated at more than 90 billion dollars globally. Corresponding relief andreconstruction packages measuring in billions of dollars over the past three decades have brought large newinvestments and the formation of new capital assets. The literature has debated the distributional impacts of naturaldisasters across households by income group. Most studies focus on a specific country or region, and the findings donot converge. Some find that natural disasters reduce income inequality, while others report the opposite. This studyadds new empirical evidence on the impacts of natural disasters on income inequality by pooling data from 130countries for 1990–2017. The study employs the generalized synthetic control method, which involves identifying thecausal effects by comparing the actual post-disaster Gini index for treated countries with a counterfactual. The dataare from the EM-DAT database maintained by the Centre for Research on the Epidemiology of Disasters and covers 70percent of natural disasters globally. The key finding of the study is that catastrophic natural disasters havenegative relationships with inequality, as measured by the Gini index, in both the short and long run. The study alsodiscusses potential mechanisms, such as physical infrastructure, disruptive creation, institutions, politicalrevolution, and financial aid, to further explain findings from the empirical analysis.