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How do International Financial Flows to Developing Countries Respond to Natural Disasters?
Author:
Mr. Antonio David
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Series:
IMF Working Papers
Volume/Issue:
Volume 2010: Issue 166
Language:
English
Publication Date:
01 Jul 2010
DOI:
https://doi.org/10.5089/9781455201778.001
ISBN:
9781455201778
ISSN:
1018-5941
Pages:
34
Keywords:
WP; capital flow; real interest rate; exchange rate
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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This paper uses multivariate dynamic panel analysis to examine the response of international financial flows to natural disasters. The models estimated for a large sample of developing countries point to differentiated responses of specific types of financial flows. The results show that remittance inflows increase significantly in response to shocks to both climatic and geological disasters. The models suggest a nuanced role for foreign aid. While the responses of aid flows to natural disaster shocks in general tend not to be statistically significant, international assistance to low income countries increases following geological disaster shocks. Furthermore, the results show that typically, other private capital flows (bank lending and equity) do not attenuate the effects of disasters and in some specifications, even amplify the negative economic effects of these events. The conclusions of the paper have implications for capital/financial account management policies. In particular, countries should take their vulnerability to natural disasters into account when considering the costs and benefits of the liberalization of private capital flows.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund