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© 2021 International Monetary Fund
WP/21/234
IMF Working Paper
Strategy, Policy and Review Department
Growth at Risks from Natural Disasters
Prepared by Tamim Bayoumi, Saad Quayyum and Sibabrata Das1
Authorized for distribution by Johannes Wiegand
September 2021
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.
Abstract
The paper analyzes the impact of natural disasters on per-capita GDP growth. Using a quantile regressions and growth-at-risk approach, the paper examines the impact of disasters and policy choices on the distribution of growth rather than simply its average. We find that countries that have in place disaster preparedness mechanisms and lower public debt have lower probability of witnessing a significant drop in growth as a consequence of a natural disaster, but our innovative methodology in this paper finds that the two policies are complements since their effectiveness vary across different disaster scenarios. While both are helpful for small to mid-size disasters, lower debt— and hence more fiscal space—is more beneficial in the face of very large disasters. A balanced strategy would thus involve both policies.
JEL Classification Numbers: E62, E63, H6, O4, Q54
Keywords: Growth, Growth at Risks, Disaster Preparedness, Public Debt
Author’s E-Mail Address: tamim.bayoumi@gmail.com, squayyum@imf.org, sdas@imf.org
Table of Contents
Abstract
I. Introduction
II. Literature Review
III. Data and Stylized Facts
A. Methodology
IV. Results
A. Growth and Disaster Preparedness
B. Growth and Public Debt
V. Conclusion
References
Appendix I
Figures
Figure 1. Natural Disasters on the Rise
Figure 2. Damage from Natural Disasters: 1961-2016
Figure 3. People Affected by Natural Disasters: 1961-2016
Figure 4. Large Natural Disasters: 1992-2016
Figure 5. Growth Around Large Natural Disasters
Figure 6. Impact of Natural Disaster on Growth
Figure 7. Impact on Growth by Disaster Type
Figure 8. Median Impact of Natural Disaster on Growth
Figure 9. Impact of Natural Disaster on Growth for Various Levels of Disaster
Figure 10. Median Impact of Natural Disaster on Growth
Figure 11. Natural Disaster, Public Debt and Growth Distribution
Tables
Table 1. Impact of Natural Disaster on Growth in the Year of Disaster
Table 2. Impact of Large Natural Disaster on Growth by Disaster Type
Table 3. Disaster Preparedness and Impact of Natural Disaster on Growth
Table 4. Public Debt and Impact of Natural Disaster on Contemporaneous Growth
Table 5. Public Debt and Impact of Natural Disaster on Growth in Years after Disaster
Table 6. Investment Growth and Natural Disaster
We would like to thank Tamim Bayoumi, Stefania Fabrizio, Kangni Kpodar, Ali Mansoor for comments and suggestions, and Sheheryar Malik for helping to plot the conditional probability density functions .