Analyzing the short and long-term economic impact of natural disasters at a local level: evidence from Chile

Tomás Baioni

No 4778, Asociación Argentina de Economía Política: Working Papers from Asociación Argentina de Economía Política

Abstract: One of the salient aspects of climate change is the increment of both the intensity and frequency of natural disasters. This paper addresses how these factors interplay at a local level, focusing on Chilean regions at a quarterly basis for the period 2009-2025, using the local projections method. Results suggest that on average, a 1% shock in natural disasters' intensity has an immediate negative effect in employment by 0.06%, and an immediate negative effect on the debt market, increasing the household debt by 0.1 p.p. Overall, my results suggest that a 1% shock in natural disasters' intensity has an immediate positive effect in real GDP by 0.02%, and a significant long-term negative effect on GDP by 0.05%, potentially showing signs of reallocation of a country's income. When analyzing natural disasters' frequency, estimates suggest that Chilean regions that suffer a natural disaster are more likely to experience short-term decreases in employment and increases in household debt, and lower GDP, although the latter effect is found to not be statistically significant. I rely on a panel VAR model to estimate the impact of natural disasters' intensity as robustness checks, and find that my original conclusions hold: natural disasters have a short-term negative effect on employment at 0.01% and a long-term negative effect on growth at 0.2%.

JEL-codes: H70 Q54 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2025-12
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Persistent link: https://EconPapers.repec.org/RePEc:aep:anales:4778

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