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The Effects of Natural Disasters on Human Capital Accumulation

35 Pages Posted: 27 Feb 2012  

Thomas K. J. McDermott

University College Cork; London School of Economics & Political Science (LSE) - Grantham Research Institute on Climate Change and the Environment

Date Written: February 24, 2012

Abstract

In this paper I investigate the effects of disasters on human capital accumulation using an extensive panel dataset on natural disasters, covering 170 countries over a 25 year period (1980-2004). My analysis shows that disasters have both a direct, contemporaneous effect and a long-term, indirect effect on human capital. While the direct effects - primarily related to injury, illness and death suffered as a result of the disaster - are relatively straightforward, the indirect effects will depend on household decision-making in the aftermath of the disaster. Treating human capital as a long-term investment decision, it is clear that access to finance is likely to be a crucial factor in household decisions about whether or not to invest in children's health and education. Indeed, my results show that aid flows are effective in mitigating the long-term impacts of disasters on health outcomes. However, for school enrollment rates, the longer-term effects of disasters are dependent on the availability of credit. These findings could have important policy implications. The indirect effects are unlikely to have been identified in previous analyses that focus on the short-term impacts of natural disasters. Given the importance of human capital in the process of economic development, the results presented here suggest that natural disasters represent a significant threat to the development prospects of relatively poor countries.

Keywords: natural disasters, epidemics, human capital, credit markets, development

JEL Classification: O11, O15, Q54, Q56

Suggested Citation

McDermott, Thomas K. J., The Effects of Natural Disasters on Human Capital Accumulation (February 24, 2012). Available at SSRN: https://ssrn.com/abstract=2011768 or http://dx.doi.org/10.2139/ssrn.2011768

Thomas K. J. McDermott (Contact Author)

University College Cork ( email )

5 Bloomfield Terrace Western Road
Cork
Ireland

London School of Economics & Political Science (LSE) - Grantham Research Institute on Climate Change and the Environment ( email )

Houghton Street
London, WC2A 2AE
Great Britain

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