Effect of Climate-Related Disasters on Consumption: Theory and Evidence from Bangladesh

Amit Roy ()
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Amit Roy: Department of Economics, Shahjalal University of Science and Technology, Sylhet, Bangladesh

Asian Development Review (ADR), 2025, vol. 42, issue 01, 259-287

Abstract: As countries grapple with the aftermath of climate-related disasters, the disruptions they inflict on domestic consumption ripple through the fabric of income and price level shocks. The income shock emanates from the adverse effects of such disasters on economic agents, leading to both wage and asset income losses. On the other hand, the destruction of productive capacity and the disruption of supply chains by climatic disasters generate a price level shock. To delve deeper into these channels, this paper builds a novel climate economy model using nonlinear model predictive control. Moreover, using time-series analysis for Bangladesh, the study uncovers compelling evidence of the existence of income and price channels through which climatic disasters impact consumption where the price effect has appeared stronger than the income effect. The findings suggest that policymakers should simultaneously prioritize income-generating and price-supporting initiatives after climate-related disasters to achieve a rapid and sustainable consumption recovery to match or surpass the predisaster level.

Keywords: climate-related disasters; consumption; income shock; nonlinear model predictive control; price shock; time-series analysis (search for similar items in EconPapers)
JEL-codes: C22 C61 E21 Q54 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1142/S0116110525500076

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