An Analysis on the Impact of Natural Disasters on the Economy of the Philippines

Abstract

Over the past century, natural disasters have been terrorizing the economy by causing human fatalities and damaging infrastructure and production inputs. The Solow growth model suggests that natural disasters adversely affect gross domestic product (GDP) since these disrupt the production of inputs. On the contrary, the Schumpeterian growth theory provides an explanation behind the positive effect of natural disasters on economic growth. This study analyzed the relationship between natural disasters (i.e. earthquake, flood, and storm), economic activities (i.e. foreign aid and foreign direct investment) and GDP per capita income in the Philippines from 1990 to 2019. This study employed a multivariate analysis, time series regression, and autoregressive distributed lag (ARDL) approach. The results revealed a complex relationship between GDP per capita and the regressors. In the short run, the independent variables have a negative and significant relationship with the country’s per capita income. On the contrary, only FDI has a significant long-run relationship with the economy of the Philippines. The results highlight the Philippines’ need for comprehensive disaster plans and to lessen its dependence on foreign and external factors.