Saving for a Rainy Day: The Impact of Storms On Saving Rates

Abstract

Over the period 1950-2019, 40% of estimated damages caused by natural disasters worldwide are attributed to storms (EM-DAT). While it is important to apprehend how people recover from these disasters, little is known about the role of saving in the process of disaster recovery. This paper empirically investigates dynamics in the saving behavior induced by storm events. Using an event study design and merging data from the Penn World Table with the EM-DAT database for 176 countries in a 69-year long period, we find a decrease in annual private saving rates by 1.85 and 2.29 percentage points four and five years following storms, respectively. Further results indicate that storms slow down per capita labor income growth by about 3 percentage points in the first two post-storm years. For intensely damaging storms, it follows a fall in saving rates by 3.19, 4.98, and 4.59 percentage points in the third, fourth, and fifth post-storm year, respectively. Declining international aid, financial access, coverage of social protection and labor programs, and rule of law within the first three post-storm years precede the falling saving rates. Robustness checks using the ifo GAME database reveal that the propensity to dis-save following the strike of a storm is instantaneous in developing countries, while it is delayed by up to three years in developed countries where people have a buffer against intense storms.

Keywords: disaster, savings, Event study