Natural Disasters and Scarring Effects

IMF Working Papers, December 16, 2022

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Paper title: Natural Disasters and Scarring Effects
Authors: Weicheng Lian, Jose Ramon Moran, Raadhika Vishvesh
Date: December 16, 2022
Core focus: Exploring medium-term scarring from natural disasters for countries vulnerable to climate change, with emphasis on severe shocks and regions such as the Caribbean.

Empirical approach: Follows the literature on hysteresis.
Identification strategy: Quantifies dynamic effects of natural disasters on real GDP per capita using a synthetic control approach (SCA).
Scope: Large number of disaster episodes; focus on severe shocks.

Persistent output deviations:
- A persistently large deviation of real GDP per capita from the counterfactual trend exists five years after a severe shock in many countries.
Vulnerable country emphasis:
- Findings highlight countries vulnerable to climate change, including those in the Caribbean region, as particularly at risk of medium-term scarring.
Implication of severity:
- The analysis concentrates on severe shocks to identify medium-term scarring effects.

Urgency of resilience:
- The findings highlight the importance and urgency of building ex-ante resilience to avoid scarring effects for countries prone to natural disasters.
Targeting:
- Policy attention is implied for regions and countries identified as vulnerable to climate change, such as the Caribbean, to reduce the likelihood and magnitude of medium-term scarring.