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© 2022 International Monetary Fund
WP/22/253
IMF Working Paper
Western Hemisphere Department
Natural Disasters and Scarring Effects Prepared by Weicheng Lian, Jose Ramon Moran, and Raadhika Vishvesh
Authorized for distribution by Sònia Muñoz December 2022
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: This paper uses a novel empirical approach, following the literature on hysteresis, to explore medium-term scarring of natural disasters for countries vulnerable to climate change. By quantifying the dynamic effects of natural disasters on real GDP per capita for a large number of episodes using a synthetic control approach (SCA) and focusing on severe shocks, we demonstrate that a persistently large deviation of real GDP per capita from the counterfacutal trend exists five years after a severe shock in many countries. The findings highlight the importance and urgency of building ex-ante resilience to avoid scarring effects for countries prone to natural disasters, such as those in the Caribbean region.
| JEL Classification Numbers: | Q54, O44, O47 |
| Keywords: | Natural disasters; scarring effects; synthetic control approach |
| Author’s E-Mail Address: | WLian@imf.org, moranvg@umich.edu, rvishvesh@imf.org |
| JEL Classification Numbers: | Q54, O44, O47 |
| Keywords: | Natural disasters; scarring effects; synthetic control approach |
| Author’s E-Mail Address: | WLian@imf.org, moranvg@umich.edu, rvishvesh@imf.org |
Title Page
WORKING PAPERS
Natural Disasters and Scarring Effects
Prepared by Weicheng Lian, Jose Ramon Moran, and Raadhika Vishvesh1
We would like to thank Sònia Muñoz and Roberto Garcia-Saltos for guidance and discussion, and Zamid Aligishiev, Olga Bespalova, Patrick Blagrave, Varapat Chensavasdijai, Ding Ding, Emilio Fernandez-Corugedo, Alejandro Guerson, Nabil Hamliri, Cian Ruane, Samuel Jaime Pienknagura Loor, and participants in IMF WHD seminars for comments.