Natural Disasters, Growth and Institutions: A Tale of Two Earthquakes

44 Pages Posted: 2 Apr 2014

Date Written: January 24, 2014

Abstract

We examine the impact of natural disasters on GDP per capita by applying the synthetic control approach. Our analysis encompasses two large-scale earthquakes that occurred in two different Italian regions in 1976 and 1980. We show that the short-term effects are negligible in both regions, though they become negative if we simulate the GDP that would have been observed in absence of financial aid. In the long-term, our findings indicate a positive effect in one case and a negative effect in the other, largely reflecting divergent patterns of the TFP. Consistently with these findings, we offer further evidence suggesting that a quake and related financial aids might either increase technical efficiency via a disruptive creation mechanism or reduce it by stimulating corruption, distorting the markets and deteriorating social capital. We finally show that the bad outcome is more likely to occur in areas with lower pre-quake institutional quality. As a result, our evidence suggests that natural disasters are likely to exacerbate differences in economic and social development.

Keywords: natural disasters, economic growth, aids, corruption, social capital, synthetic control approach

JEL Classification: R11, O40, H84, Q54

Suggested Citation

Barone, Guglielmo and Mocetti, Sauro, Natural Disasters, Growth and Institutions: A Tale of Two Earthquakes (January 24, 2014). Bank of Italy Temi di Discussione (Working Paper) No. 949. Available at SSRN: https://ssrn.com/abstract=2419422 or http://dx.doi.org/10.2139/ssrn.2419422

Guglielmo Barone (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Sauro Mocetti

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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