Natural Disasters and Growth: Going Beyond the Averages

Despite the tremendous human suffering caused by natural disasters, their effects on economic growth remain unclear, with some studies reporting negative, and others indicating no or even positive effects. To reconcile these seemingly contradictory findings reported in the literature, this study explores the effects of natural disasters on growth separately by disaster and economic sector. Applying a dynamic generalized method of moments panel estimator to a 1961–2005 cross-country panel dataset, three major insights emerge. First, disasters do affect economic growth but not always negatively, with effects that differ across types of disasters and economic sectors. Second, although moderate disasters (such as moderate floods) can have a positive growth effect in some sectors, severe disasters do not. Third, growth in developing countries is more sensitive to natural disasters than in developed ones, with more sectors affected and the effects larger and economically meaningful.