Working Paper: NBER ID: w12794
Authors: Dean Yang
Abstract: How well do countries cope with the aftermath of natural disasters? In particular, do international financial flows help buffer countries in the wake of disasters? This paper focuses on hurricanes (one of the most common and destructive types of disasters), and examines the impact of hurricane exposure on resource flows to developing countries. Using meteorological data on storm paths, I construct a time-varying storm index that takes into account the fraction of a country's population exposed to storms of varying intensities. Across developing countries, greater hurricane exposure leads to large increases in foreign aid. For other types of international financial flows, the impact of hurricanes varies according to income level. In the poorer half of the sample, hurricane exposure leads to substantial increases in migrants' remittances, so that total inflows from all sources in the three years following hurricane exposure amount to roughly three-fourths of estimated damages. In the richer half of the sample, by contrast, hurricane exposure stimulates inflows of new lending from multilateral institutions, but offsetting declines in private financial flows are so large that the null hypothesis of zero damage replacement cannot be rejected.
Keywords: Hurricanes; International Financial Flows; Natural Disasters; Foreign Aid; Remittances
JEL Codes: F21; F22; F34; F35; O19; Q54
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| hurricane exposure (Q54) | foreign aid (F35) |
| hurricane exposure (Q54) | migrants' remittances (F24) |
| hurricane exposure (Q54) | total inflows from all sources (F21) |
| hurricane exposure (Q54) | new lending from multilateral institutions (F34) |
| hurricane exposure (Q54) | private financial flows (F32) |
| hurricane exposure (Q54) | responsiveness of official development assistance (ODA) (F35) |
| hurricane exposure (Q54) | remittances in poorer countries (F24) |