Relevance of financial development and fiscal stability in dealing with disasters in Emerging Economies

TL;DR

This paper examines how financial development and fiscal stability influence the economic impact of natural disasters in emerging economies, highlighting the roles of fiscal stability and catastrophe bonds across different income levels.

Contribution

It uniquely demonstrates that fiscal stability mitigates disaster impacts in poorer countries and that catastrophe bonds are effective in richer countries.

Findings

Fiscal stability reduces disaster impact in low-income countries.

Catastrophe bonds help mitigate economic damage in high-income countries.

Financial development influences disaster resilience across emerging economies.

Abstract

Previous studies show that natural disasters decelerate economic growth, and more so in countries with lower financial development. We confirm these results with more recent data. We are the first to show that fiscal stability reduces the negative economic impact of natural disasters in poorer countries, and that catastrophe bonds have the same effect in richer countries.