Working Paper Series: Special Edition of 2016 to 2018 Interns

1.0 Introduction Over the years, there has been an increase in the frequency and intensity of natural disasters throughout the Caribbean. In addition, the prevalence of disasters is expected to increase in the future. Small island developing states (SIDS) are particularly vulnerable to natural disasters, with the countries of the Eastern Caribbean being among the most disaster-prone in the world (Rasmussen, 2004). Furthermore, natural disasters are found to have a discernible macroeconomic impact including large effects on both fiscal and external balances thus revealing the important role of precautionary measures. Since 2000, there has been an increase in both the frequency and intensity of hurricanes, with a record number of eight category 5 hurricanes occurring in the Atlantic over the period 2000 to 2009. Three of these hurricanes namely, Ivan, Emily and Dean caused extensive damage resulting in significant costs to the ECCU countries. In 2004, hurricane Ivan had a devastating effect on Grenada causing damages in excess of 200 per cent of the country’s GDP (Caribbean Development Bank, 2013). Currently, the countries of the ECCU are highly indebted and as such, the effects of natural disasters can have severe adverse effects on their fiscal and debt positions. Therefore, the objectives of this study are: 1) to investigate the impact of natural disasters on economic growth in the ECCU and 2) to examine the likely implications for debt sustainability for the ECCU member countries over the medium term. Generally, this study aims to augment the body of research geared at formulating appropriate policy responses to natural disasters in the region. The remainder of this paper is organised as follows: section 2 gives some stylised facts on the ECCU; section 3 provides a review of the literature; section 4 describes the data and methodology; section 5 presents the results and analysis; section 6 concludes and section 7 highlights some policy recommendations.

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