Natural Disasters and Economic Growth: A Review

Abstract

This article provides a literature review of economic growth theories and identifies the implications of growth theories in addressing potential impacts of uncertain shocks, that is natural disasters. The extant literature seems inconclusive: some find positive effects of natural disasters on economic growth and others suggest either negative or no effect as such. Using a large panel dataset of 187 countries observed from 1960 to 2010, this article shows that the total number of people affected by floods significantly decreases the annual GDP per capita growth rate, whereas the death toll from floods has no substantial effect on the annual GDP per capita growth rate. One thousand in every one million people affected by floods decrease the GDP per capita growth rate by 0.005 %. This result is plausible, as floods are likely to create havoc in people’s livelihoods rather than claim a high human death toll. The article outlines future directions of research in the field of natural disaster augmented growth empirics.