ISS WP, 30-11-2016
The empirical findings of this paper offer different perspective on the emerging literature on trade and disasters that based on contradictory and inconclusive evidence has argued that natural disasters reduce trade. We use succinct import demand and export supply functions providing an alternative methodological approach to the question of the impact of disasters on trade flows that has so far been mainly studied by gravity models. Our finding is that disasters are associated with higher import growth and higher export growth. Analysing a panel data set for 63 countries and the years 1970-2014 we find that natural disasters are associated with a positive shift in real annual growth rates of imports (an increase of 1.6 percentage points) and exports (an increase of 1.9 percentage points). Regarding imports, our findings reflect that disasters imply the need for reconstruction and imports to replace domestic production destroyed by the disaster. For exports, our results are in line with the Schumpeterian destructive creation hypothesis and reflect that more autocratic regimes are able to give priority to reconstruction and survival of the export sector. Our econometric analysis offers support for the existence of nonlinearities between disaster impact on exports and level of development. We do not find support for the idea that FDI stocks enhance trade resilience.