Natural disasters, growth and institutions: A tale of two earthquakes

Guglielmo Barone () and Sauro Mocetti

Journal of Urban Economics, 2014, vol. 84, issue C, 52-66

Abstract: We examine the impact of natural disasters on GDP per capita by applying the synthetic control approach and using a within-country perspective. Our analysis encompasses two large-scale earthquakes that occurred in two different Italian regions in 1976 and 1980. We show that the short-term effects are negligible in both regions, though they become negative if we simulate the GDP that would have been observed in absence of financial aid. In the long-term, our findings indicate a positive effect in one case and a negative effect in the other, largely reflecting divergent patterns of the TFP. Consistent with these findings, we offer further evidence suggesting that a quake and related financial aid might either increase technical efficiency via a disruptive creation mechanism or reduce it by stimulating corruption, distorting the markets and deteriorating social capital. Finally, we show that the bad outcome is more likely to occur in regions with lower pre-quake institutional quality. As a result, our evidence suggests that unanticipated local shocks are likely to change long run growth rates, exacerbating territorial disparities.

Keywords: Natural disasters; Economic growth; Financial aid; Corruption; Social capital; Synthetic control approach (search for similar items in EconPapers)
JEL-codes: H84 O40 Q54 R11 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (104)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:juecon:v:84:y:2014:i:c:p:52-66

DOI: 10.1016/j.jue.2014.09.002

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