The Economic and Financial Costs of Climate Change in Small Island Developing States: Assessing the Effect of Hurricanes & Tropical Storms on Stock and Foreign Exchange Markets in Jamaica

Abstract

During the year 2017, hurricanes Irma and Maria wreaked havoc in the Caribbean and severely disrupted entire societies. This study extends the literature on the impact of climate change on Small Island Developing States by investigating the impact of hurricanes and tropical storms on stock and foreign exchange markets in Jamaica. The study finds that in a majority of cases, the passage of hurricanes and tropical storms lead to significant losses on Jamaica’s stock and foreign exchange markets, and in some cases, exceed the widely reported losses from damage to property and infrastructure. The implication is that failure to account for financial market losses can significantly understate the economic and financial impact of natural disasters. The results reinforce the vulnerability of Small Island Developing States like Jamaica to natural disasters and provide another dimension to the scale of the negative impacts of climate change on these nations. The findings also suggest that measures to mitigate the effects of climate change and natural disasters not only minimize loss of life, property and infrastructure, but may also serve to protect the value of pensions and other investments held in the stock market, as well as help maintain the stability of the currency.