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Macroeconomic Outcomes in Disaster-Prone Countries
Author:
Mr. Alessandro Cantelmo
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,
Mr. Giovanni Melina
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Mr. Chris Papageorgiou
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Series:
IMF Working Papers
Volume/Issue:
Volume 2019: Issue 217
Language:
English
Publication Date:
11 Oct 2019
DOI:
https://doi.org/10.5089/9781513515380.001
ISBN:
9781513515380
ISSN:
1018-5941
Pages:
52
Keywords:
WP; depreciation rate; math display; natural disasters; climate change; DSGE; resilient capital; international aid; welfare loss; disaster-prone country; country group; net export; countries vis-à-vis; percentage terms; Consumption; Private investment; Pacific Islands; Global; Central Africa; Caribbean
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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Using a dynamic stochastic general equilibrium model, we study the channels through which natural disaster shocks affect macroeconomic outcomes and welfare in disaster-prone countries. We solve the model using Taylor projection, a solution method that is shown to deal effectively with high-impact weather shocks calibrated in accordance to empirical evidence. We find large and persistent effects of weather shocks that significantly impact the income convergence path of disaster-prone countries. Relative to non-disaster-prone countries, on average, these shocks cause a welfare loss equivalent to a permanent fall in consumption of 1.6 percent. Welfare gains to countries that self-finance investments in resilient public infrastructure are found to be negligible, and international aid has to be sizable to achieve significant welfare gains. In addition, it is more cost-effective for donors to contribute to the financing of resilience before the realization of disasters, rather than disbursing aid after their realization.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund