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Source: International Monetary Fund

Macroeconomic Outcomes in Disaster-Prone Countries


Alessandro Cantelmo ; Giovanni Melina ; Chris Papageorgiou

Publication Date:

October 11, 2019

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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.


Using a dynamic stochastic general equilibrium model, we study the channels through which natural disaster shocks a?ect macroeconomic outcomes and welfare in disaster-prone countries. We solve the model using Taylor projection, a solution method that is shown to deal e?ectively with high-impact weather shocks calibrated in accordance to empirical evidence. We ?nd large and persistent e?ects of weather shocks that signi?cantly impact the income convergence path of disaster-prone countries. Relative to non-disaster-prone countries, on average, these shocks cause a welfare loss equivalent to a permanent fall in consumption of 1.6 percent. Welfare gains to countries that self-finance investments in resilient public infrastructure are found to be negligible, and international aid has to be sizable to achieve signi?cant welfare gains. In addition, it is more cost-e?ective for donors to contribute to the ?nancing of resilience before the realization of disasters, rather than disbursing aid after their realization.


Working Paper No. 19/217


Publication Date:

October 11, 2019



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