The effect of natural and man-made disasters on countries’ production efficiency

George Halkos,Nickolaos G Tzeremes,Shunsuke Managi

doi:10.1186/s40008-015-0019-2

George Halkos, Nickolaos G Tzeremes + Show 1 more

Open Access

https://doi.org/10.1186/s40008-015-0019-2

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Abstract

Abstract This study intends to understand how disaster is related to countries’ production efficiency using a sample of 137 countries over 1980–2011. We analyze the effect of the number of man-made and natural disaster occurrences on countries’ technological change (swift of the frontier) and technological catch-up (distribution of efficiencies). The results reveal an inverted “U” shape relationship between countries’ technological change and technological catch-up with disaster occurrences. This finding suggests that the effect on countries’ production efficiency is positive for lower number of disaster events; however, after a specific threshold value, the effect becomes negative. The results also reveal that low-income countries are negatively affected much quicker compared to high-income countries. Finally, it is evident that the negative effect of disaster occurrences impacts first countries’ technological catch-up and then their technology change.

Highlights

Disaster mitigation and adaptation are important for sustainable economy in a society
4 Conclusions We examine the effect of the number of man-made and natural disaster occurrences on countries’ production efficiency levels in a fully nonparametric framework to a sample of 137 countries over the period 1980–2011
By applying the newly developed time-dependent conditional efficiency measures by Mastromarco and Simar (2014) and the methodological approach by Bădin et al (2012), we examine the effect of disaster occurrences on countries’ technological change and technological catch-up. This is the first study that examines the relationship between disasters and countries’ production efficiency in a fully nonparametric framework

Summary

Introduction

Disaster mitigation and adaptation are important for sustainable economy in a society. Macroeconomists and environmental economists have been studying on the economic analysis of disasters. The economic impact from disasters and the mechanism alleviating from disasters (such as insurance) has been well studied in the literature (see, e.g., Cavallo et al 2013; McDermott et al 2014). There are cases indicating that more disasters are associated with more GDP (Cavallo et al 2013; Managi & Sharma 2015). As has been pointed out by McDermott et al (2014), mild shocks can stimulate reconstruction and can cause growth. There is a broader view in the literature that humanitarian and climatic disasters have a direct negative effect on economic output (Raddatz 2007)

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