Building resilience to natural disasters: An application to small developing states

Ricardo Marto, Chris Papageorgiou () and Vladimir Klyuev

Journal of Development Economics, 2018, vol. 135, issue C, 574-586

Abstract: We present a dynamic small open economy model to explore the macroeconomic impact of a major natural disaster. In addition to permanent damages to public and private capital, the disaster causes temporary losses of productivity, inefficiencies during the reconstruction process, and damages to the sovereign's creditworthiness. We use the model to study the debt sustainability concerns that arise from the need to fully rebuild public infrastructure over the medium term and analyze the feasibility of ex ante policies, such as building adaptation infrastructure and fiscal buffers, and contrast these policies with the post-disaster support provided by donors. Investing in resilient infrastructure may prove useful, in particular if it is viewed as complementary to standard infrastructure, because it raises the marginal product of private capital, crowding in private investment, while helping withstand the impact of the natural disaster. In an application to Vanuatu, we find that donors should provide an additional 50% of pre-cyclone GDP in grants to be spent over the following 15 years to ensure public debt remains sustainable following Cyclone Pam. Helping the government build resilience on the other hand, reduces the risk of debt distress and at lower cost for donors.

Keywords: Natural disasters; Resilience; Adaptation; Debt sustainability; Small states (search for similar items in EconPapers)
JEL-codes: E22 E62 F34 F35 H54 H63 H84 O23 Q54 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (38)

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Working Paper: Building Resilience to Natural Disasters: An Application to Small Developing States (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:deveco:v:135:y:2018:i:c:p:574-586

DOI: 10.1016/j.jdeveco.2018.08.008

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