IMF Working Papers

The Macroeconomic and Welfare Benefits of Building Resilience in Disaster-Prone Developing Countries

By Yehenew Endegnanew, Rafael D Goncalves, Samuel Mann, Marina Mendes Tavares, Harold Zavarce

January 17, 2025

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Format: Chicago

Yehenew Endegnanew, Rafael D Goncalves, Samuel Mann, Marina Mendes Tavares, and Harold Zavarce. "The Macroeconomic and Welfare Benefits of Building Resilience in Disaster-Prone Developing Countries", IMF Working Papers 2025, 013 (2025), accessed January 21, 2025, https://doi.org/10.5089/9798400296789.001

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Natural disasters often have high economic costs, setting back years of investment in developing countries. This paper develops a multi-sector DSGE model to study the macroeconomic and welfare implications of financing resilience-building using different fiscal instruments. The model includes developing countries’ macroeconomic and distributional features, such as a large unproductive rural sector, an incomplete credit market, and an informal sector. The results indicate that investing in resilience capital in a disaster-prone country improves welfare despite its high economic cost, but the financial instrument used to mobilize revenue matters.

Subject: Agricultural sector, Consumption, Economic sectors, Energy sector, Environment, Human capital, Labor, Manufacturing, National accounts, Natural disasters

Keywords: Agricultural sector, Consumption, Energy sector, Fiscal sustainability., Human capital, Infrastructure, Macroeconomics, Manufacturing, Natural disasters, Natural disasters, Resilient investment

Publication Details

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