Economic Policies and the Impact of Natural Disasters on Economic Growth: A Threshold Regression Approach

This paper investigates the impact of natural disasters on the long-term macroeconomic performance of a country. More specifically, we want to see whether the impact of natural disasters on economic growth is uniform across countries or it is differentiated according to the macroeconomic policy environment and other structural characteristics of the countries at hand. In order to test this empirically we use the Threshold Regression (TR) approach of Hansen (2000) and data from 90 countries over the period of 1970 to 2001. Our analysis reveals several interesting patterns such as: countries with higher per capita income, higher government spending, higher degree of openness to trade, less fiscal imbalances and greater financial stability are better able to withstand the disaster shock and further prevent its impact on long-term economic growth.