Working Paper Series: Special Edition of 2016 to 2018 Interns

Fomby et al (2011) analyses the yearly economic growth response of countries in the aftermath of natural disasters in 60 developing countries and 24 developed countries from 1960 to 2007. The study utilises a panel VAR methodology with endogenous variables and exogenous shocks. The results show that natural disasters have a greater impact on developing countries than on developed countries. Similar to Loayza et al (2009), different natural disasters have varying effects on economic growth and some natural disasters were found to be beneficial if of moderate intensity. For example, the results suggest that moderate floods have a positive impact on agricultural growth through the collection of irrigation water. However, the findings show that severe natural disasters have a strong negative effect on growth. Melecky and Raddatz (2011) uses a panel VAR model to estimate the impact of natural disasters on government expenditures and revenues for middle and high-income countries for the period 1975-2008. The results reveal that disasters have a negative impact on the fiscal stance of the countries by decreasing output and increasing the deficit particularly in low and middle-income countries. Furthermore, it was found that countries with a high level of insurance or a more developed financial market experienced smaller output declines in relation to natural disasters. Similarly, Acevedo (2014) explores the effects of natural disaster occurrences on growth and debt in the Caribbean by using a panel VAR model with exogenous variables over 40 years, from 1970 to 2009. The findings show that moderate floods and storms have a negative effect on growth and debt while severe disasters generate larger declines in output. Additionally, the results suggest that floods increase debt. Scott-Joseph (2010) addresses the issue of natural disaster expenditure and fiscal sustainability in the ECCU. Specifically, the paper examines the effect of natural disasters expenditure on fiscal policy cyclicality. The results show that when unexpected events such as natural disasters occur the government will automatically increase public expenditure, thereby undertaking pro-cyclical fiscal policies that generally lead to wider fiscal deficits.

159