Climate change, natural disasters, and institutional integrity

Abstract

We empirically investigate the effect of climate-induced natural disasters on the quality of institutions in 92 countries using data from 1984 to 2016. An instrumental variable approach is used to account for the reverse causality from the number of people affected by natural disasters to the quality of institutions. We then employ the Hausman Taylor approach to account for the bias in estimating panels with endogenous variables. Estimation results reveal a negative impact of natural disasters on the quality of national institutions. Furthermore, disasters negatively affect the quality of institutions in low-income, non-developed countries, whereas the effect is non-significant for high-income and developed nations. At the regional level, institutions in East Asia, Pacific, and South Asia, Sub-Saharan Africa, Eastern Europe and Central Asia, and Latin America and the Caribbean tend to deteriorate after natural disasters. In contrast, natural disasters in the Middle East and North Africa are often followed by improved institutions. Of the 12 components of the institutional integrity index, metrics mostly affected by disasters include government stability, internal conflicts, law and order, ethnic fragmentation, and democratic accountability. Our results suggest that disaster risk reduction policies and international assistance programs to help climate change adaptation in various economies need a combined “top-down” and “bottom-up” approach. Additionally, institutional strengthening should be an integral component of disaster preparedness and adaptation efforts.