Man versus Mother Nature

AuthorNicole Laframboise and Sebastian Acevedo
Positiona Deputy Division Chief and is an Economist, both in the IMF's Western Hemisphere Department.

IMAGES of destruction and grief following Typhoon Haiyan, which hit the Philippines in November 2013, are still fresh in our minds. They summon up similar scenes of devastation following the great south Asian tsunami of 2004 and Hurricane Katrina, which hit the United States in 2005. And the damages are not limited to immediate effects.Â

The New York Times ran a heartbreaking front-page story in November 2013, describing the plight of a young man in the Philippines who sustained a simple leg fracture after Typhoon Haiyan (Bradsher, 2013). He lay on a gurney in a makeshift hospital, surrounded by his children, for five days awaiting treatment, only to die from an infection.Â

Not surprisingly, disasters have long-lasting psychological consequences. In addition to the immediate direct human cost, natural disasters often exacerbate poverty and undermine social welfare. Developing economies—and their most vulnerable populations—are especially at risk.Â

Are there more natural disasters today and are they more severe? Or are we simply better informed thanks to modern real-time, round-the-clock media coverage? What about our response? Have we figured out—with technology and sophisticated communications—how to prepare and respond in a way that saves lives and limits economic damage?

Over the past 50 years, the frequency of natural disasters has indeed increased (see Chart 1). Reporting of disasters has improved dramatically, but there has also been a documented rise in the number and intensity of climatic disasters and more people and physical assets are concentrated in at-risk areas. Interestingly, in the past decade the number of reported disasters dipped, but the number of people affected and the related costs continued to rise.Â

The poor more at risk

Natural disasters are more common and affect more people in developing economies (all low- and middle-income countries as defined by the World Bank) than elsewhere (Laframboise and Loko, 2012) (see Chart 2). Since the 1960s, about 99 percent of the people affected by natural disasters lived in developing economies (87 percent middle income, 12 percent low income), and 97 percent of all disaster-related deaths occurred there (64 percent middle income, 32 percent low income). Weighted by land area and population, small island states suffer the highest frequency of natural disasters. In the eastern Caribbean, a large natural disaster with damage equivalent to more than 2 percent of GDP can be expected every two to three years.Â

Advanced economies are better equipped to absorb the cost of disasters because they have recourse to private insurance, higher domestic savings, and market financing. They also allocate more resources to reducing vulnerabilities—for example, by developing and enforcing building codes.Â

The dollar value of disaster damage is much larger in advanced economies because of the amount and concentration of capital, but as a percentage of national wealth and output, the damage is usually much greater in developing economies. For example, the direct costs of the large earthquake in Japan in 2011 were estimated at about 3.6 percent of GDP; in Haiti the direct cost of the 2010 earthquake far exceeded total GDP that year.Â

People in developing economies are more likely to live in high-risk areas, and those countries tend to have a weak infrastructure. Developing economies rely more on sectors such as agriculture and tourism that depend on the weather. Moreover, their economic sectors are more interconnected—which makes these countries’ economies more vulnerable to shocks in other sectors...

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