Carol Tan reviews a 2013 study that investigated the difference in impact on economic growth among countries hit by disasters based on the efficiency of their credit markets.
In November 2013, Typhoon Haiyan slammed into various countries in the Pacific, the hardest hit of which was the Philippines. In the wake of the disaster, aid money flowed quickly to assist victims with relief and rebuilding — about a quarter of the estimated aid needed was raised within the first four days. But after the massive destruction and the large influxes of donations, what generally happens to a country’s economy? And what are the key variables that explain the varying impact of crises on post-disaster economic development?
A 2013 study published in Oxford Economic Papers, “Disasters and Development: Natural Disasters, Credit Constraints, and Economic Growth,” investigates the difference in impact on economic growth among countries hit by disasters based on the efficiency of their credit markets. The authors — Thomas K.J. McDermott of the London School of Economics, Frank Barry of Trinity College Dublin and Richard S.J. Tol of the University of Sussex/Vrije Universiteit — test their hypotheses over 178 countries covering the period 1979-2007 and construct a theoretical model.
The study’s findings include:
The credit channel therefore proves extremely important in the road to recovery for post-disaster nations. The study concludes: “The role of access to finance appears to be a distinct channel of effect from disasters to economic growth, and not just a proxy for related factors such as poverty, economic structure (i.e., dependence on agriculture), political institutions, government spending, or macroeconomic stability.” However, other causal mechanisms need also to be investigated. As the authors note, “an alternative channel of causation from natural disasters to economic growth, which [was] not considered explicitly in this article, is their potential effects on technological progress.” It is critical, they state, for further research to be conducted on this line of causation in order to remove the potential conflating of the credit and technological effects.
Carol Tan is currently a research assistant at the Harvard Kennedy School's Shorenstein Center on Media, Politics and Public Policy. This piece was originally published on Journalist's Resource