Working Paper Series: Special Edition of 2016 to 2018 Interns

In an empirical study, Lugay and James (2014) investigates the impact of natural disasters on public debt accumulation in the ECCU countries for the period 1993-2011 using a fixed effects panel data model. The study contends that the occurrence of natural disasters leads to the accumulation of public debt in order to finance reconstruction as fiscal resources in the region tend to be limited and expenditure structures are too rigid to absorb the effects of external shocks. Moreover, the results reveal that when a natural disaster causes 2 per cent or more of GDP in damages in a year the debt to GDP ratio increases by 6.7 per cent in comparison to a year where no disaster or a less intense disaster occurred. Overall, the review of the literature shows that there is mixed results on the impact of disasters on growth, with the main findings being that natural disasters negatively impact growth in the short run while being positively correlated with growth in the long run. For the purpose of this study, the dataset consists of an unbalanced panel of 267 observations for the eight ECCU countries (Anguilla, Antigua and Barbuda, Dominica, Grenada, Montserrat, St Kitts and Nevis, Saint Lucia and St. Vincent and the Grenadines) over the years 1980 to 2016. The Eastern Caribbean Central Bank was the main source of data for most variables such as real GDP, government final consumption, population growth and foreign direct investment inflows. The data on US GDP were obtained from the World Bank. The Emergency Events Database (EM-DAT), which is a database that collects data on natural disasters affecting countries around the world was used to gather data on natural disasters in the ECCU. The EM-DAT database contains all weather events from the year 1900 to present that meet the qualification of a natural disaster. In order for a natural disaster to be included in the database, the event must fulfil one of the following criteria: 10 or more people killed; 100 or more people affected; the declaration of a state emergency; and/or a call for international assistance. 4.0 Data and Methodology 4.1 Data

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