How do International Financial Flows to Developing Countries Respond to Natural Disasters?

IMF Working Papers, July 1, 2010

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How do International Financial Flows to Developing Countries Respond to Natural Disasters?

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Bibliographic details

• Authors: Antonio David
• Published: July 1, 2010
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781455201778.001

Summary

• Uses multivariate dynamic panel analysis to examine the response of international financial flows to natural disasters for a large sample of developing countries.
• Models point to differentiated responses across specific types of financial flows.
• Conclusions have implications for capital/financial account management policies, especially regarding liberalization of private capital flows in countries vulnerable to natural disasters.

Key findings

• Remittance inflows increase significantly in response to shocks to both climatic and geological disasters.
• Responses of aid flows to natural disaster shocks in general tend not to be statistically significant.
• International assistance to low income countries increases following geological disaster shocks.
• Other private capital flows (bank lending and equity) typically do not attenuate the effects of disasters and, in some specifications, even amplify the negative economic effects of these events.

Methodology

• Multivariate dynamic panel analysis applied to a large sample of developing countries.
• Models estimate responses of different categories of international financial flows to climatic and geological disaster shocks.

Policy implications and recommendations

• Countries should take their vulnerability to natural disasters into account when considering the costs and benefits of the liberalization of private capital flows.
• Capital/financial account management policies need to consider differentiated effects across remittances, aid, and other private capital flows.

Subjects and keywords

• Subject: Capital flows, Foreign aid, Natural disasters, Real exchange rates, Remittances
• Keywords: capital flow, exchange rate, real interest rate, WP

Source: Antonio David. July 1, 2010.

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• How Do International Financial Flows to Developing Countries Respond to Natural Disasters?
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