Working Paper Series: Special Edition of 2016 to 2018 Interns

6.0 Conclusion The purpose of this empirical study was to analyse the relationship between natural disasters and economic growth in the ECCU over the period 1980-2016. The method of panel least squares was applied to estimate the variables in both models with the main findings being that natural disaster occurrences are negatively associated with a 0.79 percentage point decline in economic growth. However, this was not statistically significant. Additionally, intense natural disasters that inflict more than 1 per cent of GDP in damages were found to be associated with a 2.8 percentage point decrease in growth. These results are in line with the literature and the a priori expectations. Moreover, the Debt Sustainability Analysis revealed that the countries are not likely to have enough fiscal space to achieve their debt target if an intense natural disaster were to occur as early as the year 2018. The results indicated that natural disasters hinder growth in the ECCU and adversely impact the debt positions of the countries. High debt levels negatively impact public finances and impede the government’s ability to achieve sustainable debt levels. For the ECCU countries, the impact is immediately seen on the government’s fiscal accounts via increased fiscal deficits as a result of a significant expansion in capital expenditure. The increase in expenditure during the rehabilitation and reconstruction period generally outpace the rate of growth on the income side of the fiscal account. Natural disasters also affects the wider ECCU economy, particularly when they occur with high degree of frequency as they impede the financial capacity and welfare of the ECCU citizens. High debt levels can propagate through the economies through a number of ways, such as weak labour markets, resulting in an increase in unemployment and the crowding out of private investments. In conclusion, this paper emphasises the need for proactive policy measures to build the resilience of the ECCU countries against natural disasters and also to foster prudent debt sustainability practices.

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