Natural Disaster, Infrastructure, and Income Distribution: Empirical Evidence from Global Data

Ze Song, Gal Hochman and Govinda R. Timilsina

No 10504, Policy Research Working Paper Series from The World Bank

Abstract: Natural disasters—such as flooding, hurricanes, and earthquakes—have, on average, affected 130 million people and caused more than 40,000 deaths annually worldwide over the past three decades. The average annual value of property damage is estimated at more than 90 billion dollars globally. Corresponding relief and reconstruction packages measuring in billions of dollars over the past three decades have brought large new investments and the formation of new capital assets. The literature has debated the distributional impacts of natural disasters across households by income group. Most studies focus on a specific country or region, and the findings do not converge. Some find that natural disasters reduce income inequality, while others report the opposite. This study adds new empirical evidence on the impacts of natural disasters on income inequality by pooling data from 130 countries for 1990–2017. The study employs the generalized synthetic control method, which involves identifying the causal effects by comparing the actual post-disaster Gini index for treated countries with a counterfactual. The data are from the EM-DAT database maintained by the Centre for Research on the Epidemiology of Disasters and covers 70 percent of natural disasters globally. The key finding of the study is that catastrophic natural disasters have negative relationships with inequality, as measured by the Gini index, in both the short and long run. The study also discusses potential mechanisms, such as physical infrastructure, disruptive creation, institutions, political revolution, and financial aid, to further explain findings from the empirical analysis.

Date: 2023-06-27
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