The Effects of Natural Disasters and Weather Variations on International Trade and Financial Flows: a Review of the Empirical Literature

Abstract

This review summarizes the empirical literature on the effects of natural disasters and weather variations on international trade flows. A first result is that the body of literature is actually not as small as previously suggested. In total, I summarize 19 studies of 18 independent research teams and show that there is a large diversity in terms of motivations, data sets used, methodologies, and results. Still, some overarching conclusions can be drawn. Increases in average temperature seem to have a detrimental effect on export values (less on imports), mainly for manufactured and agricultural products. Given climate change, this is an important finding for projecting long-term developments of trade volumes. Imports seem to be less affected by temperature changes in the importing country. Findings on the effects of natural disasters are more ambiguous, but at least it can be said that exports seem to be affected negatively by occurrence and severity of disasters in the exporting country. Imports may decrease, increase, or remain unaffected by natural disasters. Regarding heterogeneous effects, small, poor, and hot countries with low degrees of institutional quality and political freedom seem to face the most detrimental effects on their trade flows. Possible directions of future research include analyzing spillover effects in-depth (in terms of time, space, and trade networks), considering adaptation, and using more granular data. Keywords: