The Economics Of Hurricanes

Dean Yang’s “Coping with Disaster: The Impact of Hurricanes on International Financial Flows, 1970-2002” seems timely. The most relevant section:

For other types of financial flows, this paper does document heterogeneity in responsiveness to disasters. The poorer the country, the more do migrants’ remittances respond [positively] to hurricane exposure. Other private flows (commercial lending, FDI, and portfolio investment), actually decline in response to hurricane exposure, and the declines appear larger in the richer half of the sample (although estimates are too imprecise to make definitive statements). Declines in these other private flows following disasters may reflect declines in rates of return or increased risk perceptions on the part of international lenders and investors. I consider understanding the reasons underlying heterogeneity in the impact of hurricane exposure on these private flows to be an important area for future research. In addition, valuable future work could use an analogous instrumental variables approach to understand the impact of damages from other types of disasters (such as earthquakes or droughts), to ascertain the generalizability of these results.

More research needed is always my favorite social science conclusion. And — as ever — does it make a difference if the country’s has excess capacity and near-zero short-term interest rates?