IMF Working Papers

Understanding the Macroeconomic Effects of Natural Disasters

By Ha Nguyen, Alan Feng, Mercedes Garcia-Escribano

February 21, 2025

Download PDF More Formats on IMF eLibrary Order a Print Copy
More formats on IMF eLibrary Order a Print Copy

Preview Citation

Format: Chicago

Ha Nguyen, Alan Feng, and Mercedes Garcia-Escribano. "Understanding the Macroeconomic Effects of Natural Disasters", IMF Working Papers 2025, 046 (2025), accessed February 22, 2025, https://doi.org/10.5089/9798229001939.001

Export Citation

  • ProCite
  • RefWorks
  • Reference Manager
  • BibTex
  • Zotero
  • EndNote

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

Climate change is causing more frequent and devastating natural disasters. The goal of this paper is two-fold. First, it examines the dynamic effects of natural disasters on the growth of output and its components. Government expenditure in advanced economies (AEs) rises immediately in the same year of the natural disaster, offsetting the decline in private investment growth and thereby mitigating the negative effect on output growth. As a result, output growth in AEs is not significantly affected by natural disasters. In contrast, the increase in government expenditure in emerging markets and developing countries (EMDEs) after a natural disaster is smaller and thus, unable to mitigate the contemporaneous negative effect on output growth (which mainly reflects the fall in investment in non-small-island EMDEs and in net exports in small-island EMDEs). In addition, the output recovery in the subsequent year does not fully offset the decline during the year of the disaster. Second, this paper assesses the role of pre-existing country characteristics in mitigating the adverse impact of natural disasters. The paper finds that small islands and countries with limited pre-disaster fiscal space tend to experience more significant declines in output growth following a natural disaster.

Subject: Commodity price shocks, Environment, Expenditure, Natural disasters, Prices

Keywords: Commodity price shocks, Economic growth, Natural disasters, Natural disasters

Publication Details

You May Also Be Interested In...

A New Perspective on Temperature Shocks

February 21, 2025

Botswana: Technical Assistance Report-Enhancing the Forecasting Policy and Analysis System at the Bank of Botswana

February 21, 2025

The Gambia: Technical Assistance Report-Climate Policy Diagnostic

February 21, 2025

Thailand: 2024 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Thailand

February 20, 2025