Natural Disasters and Scarring Effects

Natural Disasters and Scarring Effects
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Volume/Issue: Volume 2022 Issue 253
Publication date: December 2022
ISBN: 9798400229374
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Topics covered in this book

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Economics- Macroeconomics , Public Finance , Economics / General , Industries - Hospitality Travel and Tourism , Environmental Economics , Natural Disasters , Demography , Natural disasters , scarring effects , synthetic control approach , IMF working papers , scarring effect , ante resilience , medium-term scarring , output effect , Tourism , Climate change , Caribbean , Global , Western Hemisphere

Summary

This paper uses a novel empirical approach, following the literature on hysteresis, to explore medium-term scarring of natural disasters for countries vulnerable to climate change. By quantifying the dynamic effects of natural disasters on real GDP per capita for a large number of episodes using a synthetic control approach (SCA) and focusing on severe shocks, we demonstrate that a persistently large deviation of real GDP per capita from the counterfacutal trend exists five years after a severe shock in many countries. The findings highlight the importance and urgency of building ex-ante resilience to avoid scarring effects for countries prone to natural disasters, such as those in the Caribbean region.