Natural disasters are different from pandemics. They cause death, displacement, and destruction of physical capital, and unlike a pandemic, their effects are brief and confined to the areas affected. The literature shows that natural disasters impact growth in the short term. But how quickly do countries recover? The outcomes are surprising, and they show how important social fabric is for taking on the pandemic.

We studied the economic impacts of natural disasters. When a country suffers a large-scale natural disaster—defined as one so serious it can be included in the top 1% of all global natural disasters measured in terms of deaths per million people—the outcome is slower growth not only in the short-term but over the next 10 years. On average, per capita GDP of an affected country declined 10% below what it had before the disaster, and after 10 years, it was 28 percentage points below where it would have been without the disaster. Counterfactual real GDP, measured using a synthetic control methodology, would have been 18% higher without the catastrophe. Therefore, the difference between observed GDP and counterfactual GDP 10 years after the disaster is 28 percentage points of GDP.

By Eduardo Cavallo.

Full blog here.