Natural Disaster Shocks Research Articles

Effects of Natural Disasters on West Africa Sahel’s Economy: The Case of Burkina Faso, Mali and Niger

The Sahel region is facing the adverse effects of the natural disasters due to the drought and floods which are the most frequent events. These effects can be spread and affected the all the Sahel States economy. Therefore, this study attempts to analyze the effects of these natural disasters on the macroeconomic variables such as production, consumption, investment and inflation in the three (3) the northern central Sahel States. To do so, the panel vector autoregressive model (PVAR) is run on the World Bank and the International Emergency Disasters Database (EM-DAT) data from 1990 to 2021. The results revealed that the occurrence of drought shock generates significantly a negative impact on the GDP per capita at 5% level across the northern central Sahel countries (Burkina Faso, Mali, and Niger). Also, the lagged of the macroeconomic variables such as production, investment and inflation have respectively a significant and positive impact on consumption at 5% level, production at 5% level and consumption at 10% level. Furthermore, the results show an asymmetry of natural disaster shocks at the scale of the northern central Sahel States but these shocks are symmetrical in pairs. As a result, the appropriate policies must make to absorb these shocks and avoid any hysteresis effect.

Upstream propagation of shocks in supply chains: Evidence from earthquakes

AbstractWe investigate how natural disaster shocks to customers propagate upstream to suppliers’ investment. Using data from the major customers of Chinese listed firms and earthquake information during 2009–2019, we investigate the impact of customers’ earthquake exposure on corporate investment. We find that firms significantly reduce investment after their customers experience earthquakes, particularly for non‐state‐owned enterprises, firms with higher product uniqueness, firms in competitive industries, and firms in nondurable goods industries. Furthermore, our analysis highlights firms’ sales as one of the potential channels through which customers’ earthquake exposure influences firm investment. We also find that following an earthquake supplier firms reduce their transactions with the affected customers and develop alternative customers.

Climate change variability adaptation and farmers decisions of farm exit and survival in Pakistan

Pakistan is listed among the countries that are extremely vulnerable to climate changes and it has experienced several climatic and natural disaster shocks with adverse impacts on its agricultural sector and farmers livelihoods. This study investigates adaptation to climate change as a means of farm survival and farm exit in Pakistan by using panel datasets and empirically employs Multinomial Logit Model (MLN) and the Theory of Planned Behavior (TPB). The results reveal, first, farm experience significantly increases the likelihood of climate change adaptation and decreases the likelihood of farm exit. Second, land and livestock ownership both have positive and significant impact on farm survival with adaptation strategies and decrease the probability of farm exit. Third, climatic disasters have positive and significant impact on farm exit. Four, extension services have negative and significant impact on adaptation strategies and increase the probability of farm exit for those farms who did not receive climate change adaptation strategies information timely. Finally, TPB results illustrate that non-adapters climate change future intensions are affected by attitude, perceived behavioral control and subjective norms. The study findings bring scholars and policymakers attentions towards next level of climate change impact on farm exit, and are useful for farm survival and recruiting new farmers by promoting mixed-crop livestock production systems in the face of climate change, and during viral diseases such as Lumpy Skin Disease (LSD) of animals that caused a large number of animals deaths nationally and internationally.

Can government support improve households’ ability to resist natural disaster shocks? Evidence from poor rural areas in China

Can government support improve households’ ability to resist natural disaster shocks? Evidence from poor rural areas in China

The impact of natural disaster shocks on business confidence level and Istanbul Stock Exchange: A wavelet coherence approach

The focus of this study is to examine the short‐ and long‐term causal effects of natural disaster shocks on the stock market and business confidence level in the time‐frequency domain by studying the co‐movements between earthquake data and the Istanbul Stock Index closing prices, using the Wavelet Coherence and Phase Difference analyses. The empirical findings reveal that the relationship between earthquake events and financial markets is not stable over time and across different time horizons. The linkage becomes stronger in the long term when the impact of the earthquake event coincides with a financial crisis reflecting a combined effect. This nexus is also strong during the years 2007–2011 reflecting a similar combined effect of both an earthquake event and the global financial crisis. Meanwhile, co‐movement between the earthquake and the financial market index implies a negative effect in the period 2011–2012, indicating short‐run effects of stock market shocks. Differentiating these short‐term and long‐term effects has implications for risk management and policymaking.

The Strategic Use of Corporate Philanthropy: Evidence from Bank Donations

Abstract This article examines the strategic nature of banks’ charitable giving by studying bank donations to local nonprofit organizations. Relying on the application of antitrust rules in bank mergers as an exogenous shock to local deposit market competition, we find that local competition affects banks’ local donation decisions. Using county-level natural disaster shocks, we show that banks with disaster exposure reallocate donations away from nonshocked counties, where they operate branches, and toward shocked counties. The reallocation of donations represents an exogenous increase in the local share of donations in nonshocked counties for banks with no disaster exposure and leads to an increase in the local deposit market shares of such banks. Furthermore, banks can potentially earn greater profits from making donations and tend to donate to nonprofits that have the most social impact. Overall, our evidence suggests that banks participate in corporate philanthropy strategically to enhance performance.

Macroeconomic outcomes in disaster-prone countries

Using a dynamic stochastic general equilibrium model, we study the channels through which natural disaster shocks affect macroeconomic outcomes and welfare in disaster-prone countries. We solve the model using Taylor projection, a solution method that is shown to deal effectively with high-impact weather shocks calibrated in accordance to empirical evidence. We find large and persistent effects of weather shocks that significantly impact the income convergence path of disaster-prone countries. Relative to non-disaster-prone countries, on average, these shocks cause a welfare loss equivalent to a permanent fall in consumption of 5.3 percent. Welfare gains to countries that self-finance investments in resilient public infrastructure are found to be small, and international aid has to be sizable to achieve significant welfare gains. In addition, it is more cost-effective for donors to contribute to the financing of resilience before the realization of disasters, rather than disbursing aid after their realization.

Climate change exposure, risk management and corporate social responsibility: Cross-country evidence

We examine how climate change risk impacts corporate social responsibility using an international firm-level sample. Exploiting a new firm-level measure of climate change risk, we find that firms significantly adjust their CSR standards upwards in response to climate change risk shocks. Using the difference in difference (DiD) approach and natural disaster shocks as plausibly exogenous shocks to climate change risk, we document an increase in CSR performance for affected firms relative to their unaffected peers after severe natural disasters. Additionally, we observe that the sensitivity of CSR performance to climate change risk jumps after the release of the Stern Review and the Paris Agreement. Furthermore, we find that this impact is more pronounced for firms in climate-sensitive sectors, firms with more growth options, firms with higher governance standards, and firms in highly competitive industries. Overall, our findings reveal that climate change uncertainty can trigger firms to invest more in CSR activities to hedge against regulatory and physical risks.

Impact of Natural Disaster Shocks on Farm Household Poverty Vulnerability—A Threshold Effect Based on Livelihood Resilience

Poverty caused by disasters poses a great challenge to consolidate the achievements of poverty alleviation. Livelihood resilience is the key factor for farmers to resist risks and get rid of poverty. Therefore, this study used the China Family Panel Studies (CFPS) database. Firstly, we examined the impact of natural disasters on the poverty vulnerability of farmers. Secondly, taking livelihood resilience and its decomposition dimensions as threshold variables, we examined the mechanism of livelihood resilience between natural disasters and poverty. The results show that natural disaster shocks, natural disaster intensity, and natural disaster frequency all had a significant positive effect on farm households’ vulnerability to poverty. The threshold test shows that natural disasters had larger effects on the poverty vulnerability of the farmers with lower buffer capacity, self-organizing capacity, and learning capacity. When the livelihood resilience value exceeded the third threshold, the impact of natural disasters on the poverty vulnerability of farmers turned from positive to negative. When the buffer capacity exceeded the third threshold, the impact of natural disasters on poverty vulnerability turned from positive to negative; when the self-organizing capacity exceeded the first threshold, the impact of natural disasters on poverty vulnerability turned from positive to negative; when the learning capacity exceeded the third threshold, the impact of natural disasters on poverty vulnerability turned from positive to negative. Therefore, it is suggested that appropriate policies should be needed to support farmers’ livelihood resilience and address disaster-induced poverty by improving farmers’ buffer capacity, self-organizing capacity, and learning capacity. Focusing on farmers’ livelihood resilience, government should establish a policy support system aimed at improving farmers’ buffer capacity, self-organizing capacity, and learning capacity, that will help farmers to escape from disaster-induced poverty.

A Study on the Impact of Natural Disasters on Farmers’ Relative Poverty

In 2020, China announced the successful completion of its poverty alleviation mission, noting that the focus of China’s poverty alleviation mission has shifted from eliminating absolute poverty to alleviating relative poverty. Due to global warming and frequent natural disasters, natural disaster shocks have seriously affected farmers’ livelihoods and aggravated relative poverty. Based on 5,804 rural household samples from the China Family Panel Studies, the impact of natural disasters on farmers’ relative poverty was investigated using the logit model. In addition, the interaction terms between the impact and intensity of natural disasters, non-agricultural employment and productive investment were included in the model. The results show that: 1) Natural disaster shocks and natural disaster intensities had a significant positive impact on farmers’ relative poverty. 2) Migrating for work and stable employment effectively alleviated the positive impact of natural disaster shocks and natural disaster intensities on farmers’ relative poverty, respectively. 3) Productive investment weakened the positive impact of natural disaster shocks on farmers’ relative poverty. 4) Scale management effectively alleviated the positive impact of natural disaster shocks on farmers’ relative poverty, but the moderating effect of scale management was not significant in areas with high disaster intensities.

Exploring the nexus between natural disasters and food (in)security: Evidence from rural Bangladesh

AbstractThe Sustainable Development Goals (SDG) emphasise the reduction of poverty, hunger, and food insecurity as prerequisites for the economic development of a country. This paper examines how natural disaster shocks affect the food security of rural households in Bangladesh. We utilise the latest edition of the Bangladesh Integrated Household Survey (BIHS) produced by the International Food Policy Research Institute to understand the determinants of food security. In contrast to the existing literature, we use the Food Insecurity Experience Scale (FIES) to measure household food security. The empirical result from an ordered logit regression suggests that households that are exposed to natural disaster shocks are more likely to be food insecure compared with households that have not been exposed to such shocks. Furthermore, international remittances increase food security, while domestic remittances do not significantly affect household food security. The study also found that the marital status and education of the household head, household indebtedness, household size, education, expenditures and landownership significantly affect food security. Our findings underscore the importance of investing in the development of infrastructure and food storage facilities in rural communities to tackle food insecurity. Moreover, increasing technical knowledge and improving the quality of education are vital to strengthen food security in Bangladesh.

Barbados: 2021 Article IV Consultation, Sixth Review Under the Extended Arrangement Under the Extended Facility, and Request for Modification of Performance Criteria-Press Release; and Staff Report

While Barbados has been making good progress in implementing its Economic Recovery and Transformation (BERT) plan to restore fiscal and debt sustainability, rebuild reserves, and increase growth, it continues to face major challenges owing to the global pandemic. International reserves have increased to US$1.4 billion by October 2021 supported by IFI loans. This, and a successful 2018-19 public debt restructuring, have helped rebuild confidence in the country’s macroeconomic framework. However, a virtual standstill in the tourism sector during the pandemic took a significant toll in 2020, with the economy contracting by 18 percent. While Barbados was successful in containing the outbreak during 2020, renewed COVID-19 waves weighed on the economic recovery in 2021. In addition, Barbados was hit by the twin natural disaster shocks of volcanic ashfalls from neighboring St. Vincent in April and category 1 hurricane Elsa in July. Economic growth is projected at 1.6 percent for 2021 premised on a modest recovery of tourism towards the end of 2021—down from 3 percent projected at the time of the fifth EFF review. The outlook remains highly uncertain, and risks are elevated.

Expectation formation following pandemic events

Previous studies find that the degree of information rigidity is negatively associated with natural disaster shocks, recessions, and high economic uncertainty, suggesting that the expectation formation process is state dependent. Matching a large panel data of macroeconomic forecasts to the pandemic data, this letter shows that the degree of information rigidity declines significantly following pandemic events, confirming that the expectation formation process is also driven by unexpected health shocks.

Adapting to Climate Change in Vietnam: Insights from a Structural Model

Vietnam is increasingly exposed to climate change. The COVID-19 crisis offers an opportunity to push for green investment and climate-resilient adaptation. In this context, the paper uses a DSGE structural model, calibrated to features of the Vietnamese economy, to simulate the macroeconomic trade-offs of investing in resilient infrastructure. Compared to scenarios of a baseline no policy change and additional standard infrastructure spending, the model findings illustrate the long-term benefits of adaptation infrastructure investments on growth and public debt dynamics. Specifically, while adaptation infrastructure is initially slightly costlier during the scale-up period, it can better withstand natural disaster shocks, and over time, would have lower maintenance costs and higher return than conventional infrastructure. Other model scenarios illustrate the trade-offs of different financing sources as well as the benefits of public financial management reforms that improve investment efficiency.

Government Insurance Against Natural Disasters

This paper estimates insurance requirements against natural disasters (NDs) in the Eastern Caribbean Currency Union (ECCU) using an insurance layering framework. The layers include a government saving fund, as well as market instruments. Each layer is calibrated to cover estimated fiscal cost of NDs according to intensity and expected damage. The results indicate that ECCU countries could target saving fund stocks for relativelly smaller and more frequent events in the range of 6-12 percent of GDP, enough to cover 95 percent of NDs’ fiscal costs. To ensure financially-sustainable saving funds with a low probability of depletion, this requires annual budget savings in the range os 0.5 to 1.9 percent of GDP per year. Additional coverage could be obtained with market instruments for large and less frequent events, albeit at a significant cost.The results are based on a Monte-Carlo experiment that simulates natural disaster shocks and their impact on output and government finances.

Can the Adoption of Protected Cultivation Facilities Affect Farm Sustainability?

Given the increasing threat of climate change to agriculture, determining how to achieve farm sustainability is important for researchers and policy makers. Among others, protected cultivation has been proposed as a possible adaptive solution at the farm level. This study contributes to this research topic by quantifying the effects of the use of protected cultivation facilities on farm sustainability. In contrast to previous studies that relied on small-scale random surveys, a population-based sample of fruit, flower and vegetable farms was drawn from the Agricultural Census Survey in Taiwan. Propensity score matching, inverse probability weighting and inverse probability weighting regression adjustment methods were applied. Empirical results show that the use of protected cultivation facilities increases farm profit by 68–73%, other things being equal. This finding is persistent when farms suffer from disaster shocks. Moreover, the changes in farm labor use can be seen as a mechanism behind the positive effect of the protected cultivation facility use on farm profit. Our findings suggest that agricultural authority can consider subsidizing farms to increase the adoption of protected cultivation facilities to mitigate the risks resulting from natural disaster shocks.

Nexus between natural and technical disaster shocks, resource depletion and growth-specific factors: evidence from quantile regression

The objective of the study is to examine the impact of natural disasters on environmental resource depletion in a context of Pakistan by using a consistent time series data from 1975 to 2016. The results of quantile regression confirm that both the natural and technical disaster degrade the environment in the form of forest depletion, mineral depletion and energy resource depletion at different quantile distributions. Further, FDI inflows and per capita income deteriorate natural environment through unsustainable mode of production in a country. The results emphasized the need to make an efficient disaster management unit to minimize economic losses through large-scale information and communication technologies. The results conclude that natural resources globally are being consumed faster than the speed of restoration. Worse is the case in Pakistan. As such the Government should make a systematic methodology to identify the protectoral functions within the communities for safeguarding and reestablishing these natural resources.

Expectation Formation Following Large, Unexpected Shocks

By matching a large database of individual macroforecaster data with the universe of sizable natural disasters across 54 countries, we identify a set of new stylized facts: forecasters are persistently heterogeneous in how often they issue or revise a forecast; information rigidity declines significantly following large, unexpected natural disaster shocks; and disagreement decreases among inattentive agents while it might increase for attentive ones. We develop a learning model that captures the two channels through which natural disaster shocks affect expectation formation: attention effect—the visibly large shocks induce immediate and synchronized updating of information for inattentive agents—and uncertainty effect—attentive agents might increase their acquisition of private information to compensate for the higher uncertainty after shocks.

Impact of natural disaster shocks and macroeconomic growth in Asia

Climate-related natural disaster shocks are expected to rise as the earth is getting warmer, which will adversely affect growth globally. Empirically, the effects of typhoons and droughts have negative impacts on economic growth and would likely to persist up to 2 decades. Using the typhoon landfalls and damage in Asia, we analyze the wind–damage relationship and find damages to gross domestic product increase by 2.3% for an increase in maximum wind speed. The extreme projected temperature rise in Representative Concentration Pathway (RCP) 8.5 will result in higher typhoon damage by more than 50% in 2100. Vulnerable developing Asian economies could expect dampened growth with significant impacts on agriculture and tourism, a concern that may undermine years of development and worsen inequality. To cope with increasing disaster risks, both short-term adaptation strategies like relocation, government transfers, and other social safety nets, as well as long-term strategies are needed.

Social Ties and Peer Effects in Crowdfunding Markets

Using Facebook data on social connections, we identify the crucial role online social networks play in crowdfunding markets. Investors are 41.5% more likely to fund projects that their social network peers support and are 11.2% more likely to fund projects from regions to which they have strong social ties, given a one standard deviation increase in the corresponding variables. Peer effects complement the impact of social ties and platform designs that improve disclosure and enhance accountability; social ties enhance the sensitivity of funding decisions to relevant information about area-level economic conditions. We establish causality by utilizing natural disaster shocks and further show that the investor-project–level results aggregate up and affect projects’ funding success. Our findings suggest that social networks influence investor attention, disseminate valuable information, and contribute to equilibrium capital allocation.