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Disasters and economic welfare : can national savings help explain post-disaster changes in consumption ?

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  • Mechler, Reinhard

Abstract

The debate on whether natural disasters cause significant macroeconomic impacts and indeed hinder development is ongoing. Most analyses along these lines have focused on impacts on gross domestic product. This paper looks beyond this standard national accounting aggregate, and examines whether traditional and alternative national savings measures combined with adjustments for the destruction of capital stocks may contribute to better explaining post-disaster changes in welfare as measured by changes in consumption expenditure. The author concludes that including disaster asset losses may help to better explain variations in post-disaster consumption, albeit almost exclusively for the group of low-income countries. The observed effect is rather small and in the range of a few percent of the explained variation. For low-income countries, capital stock and changes therein, such as forced by disaster shocks, seem to play a more important role than for higher-income economies, where human capital and technological progress become crucial. There are important data constraints and uncertainties, particularly regarding the quality of disaster loss data and the shares of capital stock losses therein. Another important challenge potentially biasing the results is the lack of data on alternative savings measures for many disaster-exposed lower-income countries and small island states.

Suggested Citation

  • Mechler, Reinhard, 2009. "Disasters and economic welfare : can national savings help explain post-disaster changes in consumption ?," Policy Research Working Paper Series 4988, The World Bank.
  • Handle: RePEc:wbk:wbrwps:4988
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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. Kirk Hamilton & John Hartwick, 2005. "Investing exhaustible resource rents and the path of consumption," Canadian Journal of Economics, Canadian Economics Association, vol. 38(2), pages 615-621, May.
    3. Céline Charvériat, 2000. "Natural Disasters in Latin America and the Caribbean: An Overview of Risk," Research Department Publications 4233, Inter-American Development Bank, Research Department.
    4. Toya, Hideki & Skidmore, Mark, 2007. "Economic development and the impacts of natural disasters," Economics Letters, Elsevier, vol. 94(1), pages 20-25, January.
    5. Arellano, Cristina & Bulír, Ales & Lane, Timothy & Lipschitz, Leslie, 2009. "The dynamic implications of foreign aid and its variability," Journal of Development Economics, Elsevier, vol. 88(1), pages 87-102, January.
    6. Tobias N. Rasmussen, 2004. "Macroeconomic Implications of Natural Disasters in the Caribbean," IMF Working Papers 04/224, International Monetary Fund.
    7. Mark Skidmore & Hideki Toya, 2002. "Do Natural Disasters Promote Long-Run Growth?," Economic Inquiry, Western Economic Association International, vol. 40(4), pages 664-687, October.
    8. Jose Miguel Albala-Bertrand, 2006. "The Unlikeliness of an Economic Catastrophe: Localization & Globalization," Working Papers 576, Queen Mary University of London, School of Economics and Finance.
    9. Albala-Bertrand, J. M., 1993. "Political Economy of Large Natural Disasters: With Special Reference to Developing Countries," OUP Catalogue, Oxford University Press, number 9780198287650.
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    Cited by:

    1. Oscar Becerra & Eduardo Cavallo & Ilan Noy, 2014. "Foreign Aid in the Aftermath of Large Natural Disasters," Review of Development Economics, Wiley Blackwell, vol. 18(3), pages 445-460, August.
    2. Bourdeau-Brien, Michael & Kryzanowski, Lawrence, 2017. "The impact of natural disasters on the stock returns and volatilities of local firms," The Quarterly Review of Economics and Finance, Elsevier, vol. 63(C), pages 259-270.
    3. Eduardo Cavallo & Ilan Noy, 2009. "The Economics of Natural Disasters - A Survey," Working Papers 200919, University of Hawaii at Manoa, Department of Economics.
    4. Eduardo Cavallo & Ilan Noy, 2010. "The Aftermath of Natural Disasters: Beyond Destruction," CESifo Forum, Ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 11(2), pages 25-35, July.
    5. Michael Berlemann & Max Steinhardt & Jascha Tutt, 2015. "Do Natural Disasters Stimulate Individual Saving? Evidence from a Natural Experiment in a Highly Developed Country," SOEPpapers on Multidisciplinary Panel Data Research 763, DIW Berlin, The German Socio-Economic Panel (SOEP).

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    Keywords

    Hazard Risk Management; Natural Disasters; Economic Theory&Research; Emerging Markets;

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