The Economic Impact of Natural Disasters in Pacific Island Countries: Adaptation and Preparedness

By Dongyeol Lee, Huan Zhang, Chau Nguyen

May 10, 2018

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Dongyeol Lee, Huan Zhang, and Chau Nguyen. The Economic Impact of Natural Disasters in Pacific Island Countries: Adaptation and Preparedness, (USA: International Monetary Fund, 2018) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Pacific island countries are highly vulnerable to various natural disasters which are destructive, unpredictable and occur frequently. The frequency and scale of these shocks heightens the importance of medium-term economic and fiscal planning to minimize the adverse impact of disasters on economic development. This paper identifies the intensity of natural disasters for each country in the Pacific based on the distribution of damage and population affected by disasters, and estimates the impact of disasters on economic growth and international trade using a panel regression. The results show that “severe” disasters have a significant and negative impact on economic growth and lead to a deterioration of the fiscal and trade balance. We also find that the negative impact on growth is stronger for more intense disasters. Going further this paper proposes a simple and consistent method to adjust IMF staff’s economic projections and debt sustainability analysis for disaster shocks for the Pacific islands. Better incorporating the economic impact of natural disasters in the medium- and long-term economic planning would help policy makers improve fiscal policy decisions and to be better adapted and prepared for natural disasters.

Subject: Debt sustainability analysis, Environment, External debt, Fiscal policy, Fiscal stance, International trade, Natural disasters, Population and demographics, Trade balance

Keywords: Balance-to-GDP ratio, Coefficient estimate, Debt Sustainability, Debt sustainability analysis, Disaster year, Estimation result, Fiscal Balance, Fiscal stance, GDP growth, Growth, International Trade, Mass movement, Natural Disaster, Natural disasters, Pacific Islands, Percentile rank, Trade balance, WP

Publication Details

Pages:

37
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2018/108
Stock No:

WPIEA2018108
ISBN:

9781484353288
ISSN:

1018-5941

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