Impact of Natural Disasters on Financial Development

Subhani Keerthiratne () and Richard Tol
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Subhani Keerthiratne: University of Sussex

Economics of Disasters and Climate Change, 2017, vol. 1, issue 1, No 3, 33-54

Abstract: Abstract We estimate the impact of natural disasters on financial development proxied by private credit. We employ a panel fixed effects estimator as our main estimation tool on a country level panel data set of natural disasters and other economic indicators covering 147 countries for the period from 1979 to 2011. We find that companies and households get deeper into debt after a natural disaster. This effect is stronger in poorer countries whilst the effect is weaker in countries where agriculture is more important. The magnitude of per capita credit varies across countries regardless of their per capita income. Hence, the real impact of disasters on credit as a share of prevailing per capita credit is country specific as well as time specific. Our findings are robust to alternative estimators, specifications, samples and data. Private credit is only one dimension of financial development and financial markets are less well developed in poor countries which are more vulnerable to disasters. Thus, the immediate impact of natural disasters is better interpreted as households getting (further) into debt rather than as financial development, but we find longer term impacts too that indicate an expansion of credit availability.

Keywords: Natural disasters; Economic impact; Financial development; Private credit (search for similar items in EconPapers)
JEL-codes: G00 G20 G21 O11 Q54 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (21)

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Working Paper: Impact of Natural Disasters on Financial Development (2016)
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DOI: 10.1007/s41885-017-0002-5

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