Analyzing the Short and Long-term Economic Impact of Natural Disasters at a Local Level: Evidence from Chile

Tomás Baioni
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Tomás Baioni: UNLP

No 373, Working Papers from Red Nacional de Investigadores en Economía (RedNIE)

Abstract: One of the salient aspects of climate change is the increment of both the intensity and frequency of natural disasters. This paper addresses how these factors interplay at a local level, focusing on Chilean regions at a quarterly basis for the period 2009–2025. To analyze intensity, I rely on the local projections method and find that on average, a 1% shock in natural disasters’ intensity has an immediate negative effect in employment by 0.057%, and an immediate negative effect on the debt market, increasing the household debt by 0.123 p.p. Overall, my results suggest that a 1% shock in natural disasters’ intensity has an immediate positive effect in real GDP by 0.015%, and a significant long-term negative effect on GDP by 0.054%, potentially showing signs of hysteresis. On the other hand, to analyze natural disasters’ frequency, I rely on a local projections difference-in-differences (LP-DID) estimator and find that those Chilean regions that suffer a natural disaster are more likely to experience short-term decreases in employment and GDP by 0.005% and 0.003%, respectively. I rely on a panel VAR model to estimate the impact of natural disasters’ intensity as robustness checks, and find that my original conclusions hold: natural disasters have a short-term negative effect on employment at 0.005% and a long-term negative effect on growth at 0.170%.

Keywords: Climate change; natural disasters; environmental risks; emerging markets; local projections (search for similar items in EconPapers)
JEL-codes: C33 H70 Q54 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2025-09
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Persistent link: https://EconPapers.repec.org/RePEc:aoz:wpaper:373

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