An Exploration of the Link between Development, Economic Growth, and Natural Risk
This paper investigates the link between development, economic growth, and the economic losses from natural disasters in a general analytical framework, with an application to hurricane flood risks in New Orleans. It concludes that where capital ac...
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2013
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| Online Access: | http://documents.worldbank.org/curated/en/2012/10/16792662/exploration-link-between-development-economic-growth-natural-risk http://hdl.handle.net/10986/12052 |
| Summary: | This paper investigates the link between
development, economic growth, and the economic losses from
natural disasters in a general analytical framework, with an
application to hurricane flood risks in New Orleans. It
concludes that where capital accumulates through increased
density of capital at risk in a given area, and the costs of
protection therefore increase more slowly than capital at
risk, (i) protection improves over time and the probability
of disaster occurrence decreases; (ii) capital at risk --
and thus economic losses in case of disaster -- increases
faster than economic growth; (iii) increased risk-taking
reinforces economic growth. In this context, average annual
losses from disasters grow with income, and they grow faster
than income at low levels of development and slower than
income at high levels of development. These findings are
robust to a broad range of modeling choices and parameter
values, and to the inclusion of risk aversion. They show
that risk-taking is both a driver and a consequence of
economic development, and that the world is very likely to
experience fewer but more costly disasters in the future. It
is therefore critical to increase economic resilience
through the development of stronger recovery and
reconstruction support instruments. |
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