DO NATURAL DISASTERS INCREASE FINANCIAL RISKS? AN EMPIRICAL ANALYSIS

  • Li Wan Zhang Xian Jiao Tong university
  • Chun-Ping Chang Shih Chien University
Keywords: Natural Disaster, Financial Risks, Fixed Effects Model, Panel Unit Root Test

Abstract

Using an unbalanced panel data consisting of deaths from natural disasters and fivefactors of financial risks in 136 countries, this paper analyzes the effect of naturaldisasters on different financial risks. The conclusions are as follows: (1) naturaldisasters lead to financial crisis by reducing GDP and trade and increasing domesticand foreign debt; (2) the effects of natural disasters on financial risks are dynamic andlong term, with the effect weakening with time; and (3) the negative effects of naturaldisasters on financial risks in high-income and OECD countries are smaller than thoseof low-income and non-OECD countries.

Downloads

Download data is not yet available.

References

Abarcar, P., (2017) The Return Motivations of Legal Permanent Migrants, Evidence
from Exchange Rate Shocks and Immigrants in Australia, Journal of Economic
Behavior & Organization, 144, 62-77.
Ajide, K. B., and Raheem, I. D., (2016) The Institutional Quality Impact on
Remittances in The ECOWAS Sub Region, African Development Review, 28, 462-
481.
Barone, G., and Mocetti, S., (2014) Natural Disasters, Growth and Institutions: A
Tale of Two Earthquakes, Journal of Urban Economics, 84, 52-66.
Barthel, F., and Neumayer, E., (2012) A Trend Analysis of Normalized Insured
Damage from Natural Disasters, Climatic Change, 113, 215-237.
Baur, D. G., Hong, K., and Lee, A. D., (2018) Bitcoin, Medium of Exchange or
Speculative Assets?, Journal of International Financial Markets, Institutions and
Money, 54, 177-189.
Bayoumi, T., Gagnon, J., and Saborowski, C., (2015) Official Financial Flows,
Capital Mobility, and Global Imbalances, Journal of International Money and
Finance, 52, 146-174.
Berrebi, C., and Ostwald, J., (2013) Exploiting The Chaos: Terrorist Target Choice
Following Natural Disasters, Southern Economic Journal, 79, 793-811.
Breckner, M., Englmaier, F., Stowasser, T., and Sunde, U., (2016)., Resilience to
Natural Disasters-Insurance Penetration, Institutions, and Disaster Types,
Economics Letters, 148, 106-110.
Byoun, S., and Xu, Z., (2014) Contracts, Governance, and Country Risk in Project
Finance, Theory and Evidence, Journal of Corporate Finance, 26, 124-144.
Cassar, A., Healy, A., and von Kessler, C., (2017) Trust, Risk, and Time Preferences
After a Natural Disaster, Experimental Evidence from Thailand, World
Development, 94, 90-105.
Cavallo, E., Galiani, S., Noy, I., and Pantano, J., (2013) Catastrophic Natural Disasters
and Economic Growth, Review of Economics and Statistics, 95, 1549-1561.
Chiu, Y. B., and Lee, C. C., (2019) Financial Development, Income Inequality, and
Country Risk, Journal of International Money and Finance, 93, 1-18.
Ebeke, C., and Combes, J. L., (2013) Do Remittances Dampen The Effect of Natural
Disasters on Output Growth Volatility in Developing Countries?, Applied
Economics, 45, 2241-2254.
Eckstein, Z., Setty, O., and Weiss, D., (2019) Financial Risk and Unemployment,
International Economic Review, 60, 475-516.
Fang, Z., and Chang, Y., (2016) Energy, Human Capital and Economic Growth in
Asia Pacific Countries—Evidence From A Panel Cointegration and Causality
Analysis, Energy Economics, 56, 177-184.
Farhi, E., and Gabaix, X., (2015) Rare Disasters and Exchange Rates, The Quarterly
Journal of Economics, 131, 1-52.
Fouejieu, A., (2017) Inflation Targeting and Financial Stability in Emerging
Markets, Economic Modelling, 60, 51-70.
Gourio, F., (2013) Credit Risk and Disaster Risk, American Economic Journal,
Macroeconomics, 5, 1-34.
Hall, R. E., (2017) High Discounts and High Unemployment, American Economic
Review, 107, 305-30.
Hallegatte, S., Green, C., Nicholls, R. J., and Corfee-Morlot, J., (2013) Future Flood
Losses in Major Coastal Cities, Nature Climate Change, 3, 802.
Heger, M., Julca, A., and Paddison, O., (2008) Analysing The Impact of Natural
Hazards in Small Economies: The Caribbean Case WIDER Working Paper
Series, 115,3592-3597.
Holm, J. R., and Østergaard, C. R., (2015) Regional Employment Growth, Shocks
and Regional Industrial Resilience: A Quantitative Analysis of the Danish ICT
Sector Regional Studies, 49, 95-112.
Hoshi, T., (2018) Has Abenomics Succeeded in Raising Japan’s Inward Foreign
Direct Investment?, Asian Economic Policy Review, 13, 149-168.
Jonkman, S. N., and Kelman, I., (2005) An Analysis of the Causes and Circumstances
of Flood Disaster Deaths, Disasters, 29, 75-97.
Kabisch, N., Frantzeskaki, N., and Pauleit, S., (2016) Nature-Based Solutions to
Climate Change Mitigation and Adaptation in Urban Areas, Perspectives On
Indicators, Knowledge Gaps, Barriers, And Opportunities for Action, Ecology
and Society, 21, 39.
Kellenberg, D. K., and Mobarak, A. M., (2008) Does Rising Income Increase or
Decrease Damage Risk from Natural Disasters?, Journal of Urban Economics,
63, 788-802.
Kilby, C., (2009) The Political Economy of Conditionality: An Empirical Analysis
of World Bank Loan Disbursements, Journal of Development Economics, 89, 51-
61.
Kim, N., (2012) How Much More Exposed Are the Poor to Natural Disasters?
Global and Regional Measurement, Disasters, 36, 195-211.
Klomp, J., (2017) Flooded with Debt, Journal of International Money and Finance, 73,
93-103.
Laséen, S., Pescatori, A., and Turunen, J., (2017) Systemic Risk: A New Trade-Off
for Monetary Policy?, Journal of Financial Stability, 32, 70-85.
Li, L., Chen, J., Gao, H., and Xie, L., (2019) The Certification Effect of Government
R&D Subsidies on Innovative Entrepreneurial Firms’ Access to Bank Finance,
Evidence from China, Small Business Economics, 52, 241-259.
Liang, Y., Shi, K., Wang, L., and Xu, J., (2017) Local Government Debt and Firm
Leverage: Evidence from China, Asian Economic Policy Review, 12, 210-232.
Miao, Q., and Popp, D., (2014) Necessity as The Mother of Invention: Innovative
Responses to Natural Disasters, Journal of Environmental Economics and
Management, 68, 280-295.
Mohan, P. S., Ouattara, B., and Strobl, E., (2018) Decomposing The Macroeconomic
Effects of Natural Disasters: A National Income Accounting Perspective,
Ecological Economics, 146, 1-9.
Niepmann, F., and Schmidt-Eisenlohr, T., (2017) International Trade, Risk and The
Role of Banks, Journal of International Economics, 107, 111-126.
Ouattara, B., and Strobl, E., (2013) The Fiscal Implications of Hurricane Strikes in
the Caribbean, Ecological Economics, 85, 105-115.
Pek, S., Oh, C. H., and Rivera, J., (2018) MNC Foreign Investment and Industrial
Disasters: The Moderating Role of Technological, Safety Management, and
Philanthropic Capabilities, Strategic Management Journal, 39, 502-526.
Pesaran, M. H., (2007) A Simple Panel Unit Root Test in The Presence of Cross-
Section Dependence, Journal of Applied Econometrics, 22,265-312.
Raddatz, C., (2005) Are External Shocks Responsible For The Instability of Output
in Low Income Countries?, The World Bank.
Reboredo, J. C., Rivera-Castro, M. A., and Ugolini, A., (2016) Downside and Upside
Risk Spillovers Between Exchange Rates and Stock Prices, Journal of Banking &
Finance, 62, 76-96.
Robinson, T. D., Oliveira, T. M., and Kayden, S., (2017) Factors Affecting the United
Nations’ Response to Natural Disasters: What Determines The Allocation of
the Central Emergency Response Fund?, Disasters, 41, 631-648.
Sadorsky, P., (2014) The Effect of Urbanization On CO2 Emissions in Emerging
Economies. Energy Economics, 41, 147-153.
Sawada, Y., and Takasaki, Y. (2017). Natural Disaster, Poverty, and Development:
An Introduction, World Development, 94, 2-15.
Schettkat, R., (2010) Will Only An Earthquake Shake Up Economics?, International
Labour Review, 149, 185-207.
Skoufias, E., (2003) Economic Crises and Natural Disasters: Coping Strategies and
Policy Implications, World Development, 31, 1087-1102.
Song, M., Wang, S., and Sun, J. (2018). Environmental Regulations, Staff Quality,
Green Technology, R&D Efficiency, and Profit in Manufacturing, Technological
Forecasting and Social Change, 133, 1-14.
Strobl, E., (2012) The Economic Growth Impact of Natural Disasters in Developing
Countries: Evidence from Hurricane Strikes in The Central American and
Caribbean Regions, Journal of Development Economics, 97, 130-141.
Toya, H., and Skidmore, M., (2007) Economic Development and The Impacts of
Natural Disasters, Economics Letters, 94, 20-25.
Toya, H., and Skidmore, M., (2014) Do Natural Disasters Enhance Societal Trust?.
Kyklos, 67, 255-279.
Visser, H., Petersen, A. C., and Ligtvoet, W., (2014) On The Relation Between
Weather-Related Disaster Impacts, Vulnerability and Climate Change, Climatic
Change, 125, 461-477.
Waldenberger, F., (2013) Confronting Earthquake Risk in Japan—Are Private
Households Underinsured?, Asia Europe Journal, 11, 79-91.
Ward, P. S., Ortega, D. L., Spielman, D. J., Kumar, and N., Minocha, S., (2020)
Demand for Complementary Financial and Technological Tools for Managing
Drought Risk, Economic Development and Cultural Change, 68, 000-000.
Ward, P. S., and Shively, G. E., (2017) Disaster Risk, Social Vulnerability, and
Economic Development, Disasters, 41, 324-351.
Wei, W., Zhang, W. L., Wen, J., and Wang, J.S., (2019) TFP Growth in Chinese Cities: The
Role of Factor-Intensity and Industrial Agglomeration, Economic Modelling, 2019.
Yamamura, E., (2014) Impact of Natural Disaster on Public Sector Corruption,
Public Choice, 161, 385-405.
Zhang, D., Cao, H., and Zou, P., (2016) Exuberance in China’s Renewable Energy
Investment: Rationality, Capital Structure and Implications With Firm Level
Evidence, Energy Policy, 95, 468-478.
Published
2020-01-31
How to Cite
Zhang, L., & Chang, C.-P. (2020). DO NATURAL DISASTERS INCREASE FINANCIAL RISKS? AN EMPIRICAL ANALYSIS. Buletin Ekonomi Moneter Dan Perbankan, 23, 61 - 86. https://doi.org/10.21098/bemp.v23i0.1258