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Prepared by Tobias Rasmussen.
The main source of data on natural disasters used in this paper is the EM-DAT database compiled by the Centre for Research on the Epidemiology of Disasters (CRED, 2003). Natural disasters are here defined as events due to natural causes that caused 10 or more fatalities, affected 100 or more people, or resulted in a call for international assistance or the declaration of a state of emergency. This database contains information on 8,815 natural disasters from 1900–2002, including estimates of the number of people affected and the value of damage. The total number of affected is defined as people that have been injured, made homeless, or requiring immediate assistance during a period of emergency. Estimates of the number affected are available in only about two thirds of cases and are subject to significant uncertainty. The figures for estimated damage are available in only about one third of cases and are even more questionable, with CRED figures coming from a number of different sources using different methodologies. The data should therefore be interpreted with caution. Note also that windstorms and other natural events may have substantial implications even if they do not meet the EM-DAT definition of a natural disaster. In the ECCU, for example, even relatively minor tropical storms have often had large impacts on agricultural output. Despite the wealth of information, the EM-DAT data still suffers from under-reporting, especially in the earlier periods, and the analysis consequently focuses on the period since 1970.
The regressions suffer from hetereoscedasticity, but the results are generally robust to corrections for this using different statistical methods.
Crowards and Coulter (1998), ECLAC (2000), and Pollner (2001) reach a similar conclusion. At a broader level, the findings are also in line with the composite vulnerability indexes proposed by several international institutions (see Atkins et al., 2000; Crowards, 2000a; and United Nations, 2000). In addition to proneness to natural disaster, these indexes include factors such susceptibility to terms of trade shocks and concentration of exports to rank countries according to their overall vulnerability. The different indices all find that small, isolated, and low-income countries are the most vulnerable, with the ECCU countries in most cases ranking among the very most vulnerable.
Interestingly, the results do not reveal clear differences between the ECCU countries. Given that the northern islands (St. Kitts and Nevis, Antigua and Barbuda, and Dominica) are closer to the center of the hurricane belt than the southern islands (St. Lucia, St. Vincent and the Grenadines, and Grenada), one would have expected the former countries to rank higher in terms of vulnerability to natural disaster, but that is not consistently the case.
The events under consideration are the 12 natural disasters with estimated damages exceeding 2 percent of GDP shown in Table II.3 (the 1987 hurricane and flood in St. Vincent and the Grenadines are treated here as a single event).
Crowards (2000b) finds a median 13 percentage point reduction in the growth rate of tourist arrivals following natural disasters in the Caribbean.
IMF (2003), citing a number of different studies, finds that exogenous shocks and the associated policy responses have contributed to the accumulation of unsustainable external debt in many developing countries, but also that a strong policy response by governments can help prevent a lasting impact on the debt burden.
This result refers to the standard deviation of annual real GDP growth. Interestingly, as documented in Chapter I of this paper, filtering out the effect of business cycles dramatically increases the volatility of real GDP growth in the ECCU relative to that of other countries.
The relatively limited role of insurance in the Caribbean may indirectly be a result of the proneness to natural hazards, which may impede the efficiency of the insurance market.
See Pollner (2001) for an overview of new financial instruments for managing weather and disaster risks.
The Windward Islands Crop Insurance, or WINCROP, provides storm insurance for banana growers. The scheme, which covers the entire export crop in Dominica, Grenada, St. Lucia and St. Vincent and the Grenadines, only provides cover against a small proportion (20 percent) of losses, but this has proven sufficient to enable growers to rehabilitate quickly.
As documented by Pollner (2001), expense ratios of local insurance companies are between 30–40 percent of premium income, compared to the U.S. average of 26–28 percent.
The ECCB has a fiscal reserve account to assist member countries facing economic difficulties, including those caused by natural disasters. Contributions to the account are mandatory, with an amount automatically deducted from the profits owed to each member country, and the terms of drawings are determined on a case-by-case basis. The account, which has been in place for a decade, currently holds about EC$12 million and has only been used once (not in relation to a natural disaster).
See IMF (2003) for an overview of international financing mechanisms for addressing exogenous shocks. Of particular relevance for the ECCU are the programs sponsored by the Caribbean Development Bank (CDB), the Caribbean Disaster Emergency Response Agency (CDERA), and the World Bank. The CDB provides assistance for disaster relief, mitigation, and preparedness projects, and disbursed US$50 million in loans for 27 operations during 1998–2001. CDERA is a regional agency established by CARICOM in 1991 to provide immediate and coordinated response to disastrous events in member countries. Whilst the Agency’s mandate originally focused on disaster response, it is now engaged in a wide array of services, ranging from local information campaigns to logistical support for dispatch of relief supplies. The World Bank has a number of ongoing projects in the region relating to disaster management and emergency recovery.