Enterprise Recovery Following Natural Disasters

Abstract

Using unique, panel data and a randomised experiment, we assess the effects of relief aid and access to capital on the recovery of Sri Lankan microenterprises following the December 2004 tsunami. Our results show that a lack of access to capital inhibits the recovery process; firms receiving randomly allocated grants recover profit levels almost 2 years before other damaged firms. Access to capital is particularly important for the retail sector; the role of capital in recovery for manufacturing and services sectors may be limited by disruptions in supply chains. Our data show that business recovery is much slower than commonly assumed, underscoring the role targeted aid may play in hastening microenterprise recovery following such disasters.