The Growth Aftermath of Natural Disasters

57 Pages Posted: 20 Apr 2016

See all articles by Thomas Fomby

Thomas Fomby

Southern Methodist University

Yuki Ikeda

World Bank

Norman Loayza

World Bank - Research Department

Date Written: July 1, 2009


This paper provides a description of the macroeconomic aftermath of natural disasters. It traces the yearly response of gross domestic product growth - both aggregated and disaggregated into its agricultural and non-agricultural components - to four types of natural disasters - droughts, floods, earthquakes, and storms. The paper uses a methodological approach based on pooling the experiences of various countries over time. It consists of vector auto-regressions in the presence of endogenous variables and exogenous shocks (VARX), applied to a panel of cross-country and time-series data. The analysis finds heterogeneous effects on a variety of dimensions. First, the effects of natural disasters are stronger, for better or worse, on developing than on rich countries. Second, while the impact of some natural disasters can be beneficial when they are of moderate intensity, severe disasters never have positive effects. Third, not all natural disasters are alike in terms of the growth response they induce, and, perhaps surprisingly, some can entail benefits regarding economic growth. Thus, droughts have a negative effect on both agricultural and non-agricultural growth. In contrast, floods tend to have a positive effect on economic growth in both major sectors. Earthquakes have a negative effect on agricultural growth but a positive one on non-agricultural growth. Storms tend to have a negative effect on gross domestic product growth but the effect is short-lived and small. Future research should concentrate on exploring the mechanisms behind these heterogeneous impacts.

Keywords: Natural Disasters, Disaster Management, Hazard Risk Management, Achieving Shared Growth, Economic Conditions and Volatility

Suggested Citation

Fomby, Thomas B. and Ikeda, Yuki and Loayza, Norman, The Growth Aftermath of Natural Disasters (July 1, 2009). World Bank Policy Research Working Paper No. 5002, Available at SSRN:

Thomas B. Fomby (Contact Author)

Southern Methodist University ( email )

6212 Bishop Blvd.
Dallas, TX 75275
United States

Yuki Ikeda

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Norman Loayza

World Bank - Research Department ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

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