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 March 25, 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, Fiscal policy, Fiscal space, Fiscal stance, Natural disasters, Prices

Keywords: Aggregate impact, Commodity price shocks, Economic growth, Export commodity price shock, Fiscal space, Fiscal stance, Global, Growth of output, Natural disasters, Output recovery, Robustness check

Publication Details

You May Also Be Interested In...

Slovak Republic: Financial System Stability Assessment

March 24, 2025

Cameroon: Seventh Reviews Under the Extended Arrangement Under the Extended Fund Facility and the Arrangement Under the Extended Credit Facility, Request for a Waiver of Applicability of Performance Criteria, and Second Review Under the Resilience and Sustainability Facility Arrangement-Press Release; Staff Report; and Statement by the Executive Director for Cameroon

March 24, 2025

Slovak Republic: 2025 Article IV Consultation-Press Release; and Staff Report

March 24, 2025

Republic of Congo: Sixth Review Under the Three-Year Arrangement Under the Extended Credit Facility, Request for Waivers of Nonobservance of Performance Criteria, and Financing Assurances Review

March 24, 2025