Macroeconomic Outcomes in Disaster-Prone Countries

By Alessandro Cantelmo, Giovanni Melina, Chris Papageorgiou

October 11, 2019

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Alessandro Cantelmo, Giovanni Melina, and Chris Papageorgiou. Macroeconomic Outcomes in Disaster-Prone Countries, (USA: International Monetary Fund, 2019) accessed September 18, 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

Using a dynamic stochastic general equilibrium model, we study the channels through which natural disaster shocks affect macroeconomic outcomes and welfare in disaster-prone countries. We solve the model using Taylor projection, a solution method that is shown to deal effectively with high-impact weather shocks calibrated in accordance to empirical evidence. We find large and persistent effects of weather shocks that significantly impact the income convergence path of disaster-prone countries. Relative to non-disaster-prone countries, on average, these shocks cause a welfare loss equivalent to a permanent fall in consumption of 1.6 percent. Welfare gains to countries that self-finance investments in resilient public infrastructure are found to be negligible, and international aid has to be sizable to achieve significant welfare gains. In addition, it is more cost-effective for donors to contribute to the financing of resilience before the realization of disasters, rather than disbursing aid after their realization.

Subject: Climate change, Consumption, Environment, National accounts, Natural disasters, Private investment, Public debt

Keywords: Caribbean, Central Africa, Climate change, Consumption, Countries vis-à-vis, Country group, Depreciation rate, Disaster-prone country, DSGE, Global, International aid, Math display, Natural disasters, Net export, Pacific Islands, Percentage terms, Private investment, Resilient capital, Welfare loss, WP

Publication Details

Pages:

52
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2019/217
Stock No:

WPIEA2019217
ISBN:

9781513515380
ISSN:

1018-5941

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