Policy Trade-Offs in Building Resilience to Natural Disasters: The Case of St. Lucia

19 Pages Posted: 8 Apr 2019

See all articles by Alessandro Cantelmo

Alessandro Cantelmo

City University London

Leo Bonato

International Monetary Fund (IMF)

Giovanni Melina

International Monetary Fund (IMF)

Gonzalo Salinas

International Monetary Fund (IMF)

Date Written: March 2019

Abstract

Resilience to climate change and natural disasters hinges on two fundamental elements: financial protection -insurance and self-insurance- and structural protection -investment in adaptation. Using a dynamic general equilibrium model calibrated to the St. Lucia's economy, this paper shows that both strategies considerably reduce the output loss from natural disasters and studies the conditions under which each of the two strategies provides the best protection. While structural protection normally delivers a larger payoff because of its direct dampening effect on the cost of disasters, financial protection is superior when liquidity constraints limit the ability of the government to rebuild public capital promptly. The estimated trade-off is very sensitive to the efficiency of public investment.

Keywords: Real interest rates, Cost of capital, Total factor productivity, Capital, Private investments, Climate Change, Natural Disasters and Their Management, Government Policy, public capital, Papageorgiou, depreciation rate, natural disaster, public standard

JEL Classification: Q54, Q58, E01, H83, E62, G21, G3

Suggested Citation

Cantelmo, Alessandro and Bonato, Leo and Melina, Giovanni and Salinas, Gonzalo E., Policy Trade-Offs in Building Resilience to Natural Disasters: The Case of St. Lucia (March 2019). IMF Working Paper No. 19/54, Available at SSRN: https://ssrn.com/abstract=3367441

Alessandro Cantelmo (Contact Author)

City University London ( email )

Northampton Square
London, EC1V OHB
United Kingdom

Leo Bonato

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States
202 623 6712 (Phone)
202 589 6712 (Fax)

HOME PAGE: http://www.imf.org

Giovanni Melina

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Gonzalo E. Salinas

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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