Coping with Disaster: The Impact of Hurricanes on International Financial Flows, 1970-2001

Ford School of Public Policy Working Paper No. 2005-003

40 Pages Posted: 6 Apr 2005

See all articles by Dean Yang

Dean Yang

University of Michigan at Ann Arbor - Gerald R. Ford School of Public Policy; National Bureau of Economic Research (NBER); University of Michigan at Ann Arbor - Department of Economics

Date Written: March 2005

Abstract

How well do countries cope with the aftermath of natural disasters? In particular, how well do international financial flows buffer economic losses from disasters? This paper focuses on hurricanes (one of the most common and destructive types of disasters), and examines the impact of hurricane damages on resource flows to affected countries. Due to the potential endogeneity of disaster damage, I exploit instrumental variables constructed from meteorological data on hurricanes. Instrumental variables estimates indicate that disaster damages lead to increases in national-level net inflows of migrants' remittances, foreign lending, and foreign direct investment. These types of flows respond rapidly, within the first year after damages. Official development assistance (ODA) also responds positively to hurricane damage, but with a lag of roughly two years. On average, total inflows from these sources within the following four years amount to roughly four-fifths of estimated damages. The null hypothesis of full insurance of hurricane disaster damages cannot be rejected. By contrast, ordinary least squares estimates find essentially no response of international flows to disaster damages, highlighting the importance of an instrumental variables approach in this context.

Keywords: Risk-sharing, insurance, official development assistance, foreign aid, remittances, foreign direct investment, international lending, natural disasters, hurricanes

JEL Classification: F21, F22, F34, F35, O19, Q54

Suggested Citation

Yang, Dean and Yang, Dean, Coping with Disaster: The Impact of Hurricanes on International Financial Flows, 1970-2001 (March 2005). Ford School of Public Policy Working Paper No. 2005-003, Available at SSRN: https://ssrn.com/abstract=697521 or http://dx.doi.org/10.2139/ssrn.697521

Dean Yang (Contact Author)

University of Michigan at Ann Arbor - Gerald R. Ford School of Public Policy ( email )

440 Lorch Hall
611 Tappan Street
Ann Arbor, MI 48109
United States
734-764-6158 (Phone)

HOME PAGE: http://www.umich.edu/~deanyang/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

University of Michigan at Ann Arbor - Department of Economics

611 Tappan Street
Ann Arbor, MI 48109-1220
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
240
Abstract Views
4,289
Rank
240,854
PlumX Metrics