The Impact of Disaster Relief on Economic Growth: Evidence from China

Xian Xu () and Jiawei Mo
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Xian Xu: School of Economics, Fudan University, 600 Guoquan Road, Shanghai 200433, China.

The Geneva Papers on Risk and Insurance - Issues and Practice, 2013, vol. 38, issue 3, 495-520

Abstract: In this paper we construct a simple two-period equilibrium model for analysing the impact of post-disaster transfer payments on economic growth. This model can be used to show that direct payment of disaster relief funds may aggravate rather than mitigate the negative impact of disasters on the economy. The substitution effect of direct transfer payment depresses post-disaster labour supply and hence economic growth. This conclusion from the theoretical model is tested using Chinese provincial panel data and applying generalised method of moments (GMM) system estimation. The empirical analysis largely confirms the theoretical predictions. In China, post-disaster transfer payments are indeed found to exacerbate the negative impact of disasters on economic growth. Therefore, we suggest that relief should be oriented to create work incentive in order to avoid its depressing effect on economic growth.

Date: 2013
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