The impact of natural disasters on remittance inflows to
developing countries
Giulia Bettin∗
Alberto Zazzaro†
November 27, 2012
Extended abstract
The number and the frequency of natural disasters have undoubtedly increased in the last decades
(Cavallo and Noy, 2009). Between 1975 and 2011 the number of disasters increased from less than
100 to almost 350 events per year, with peaks of more than 500 disasters at the beginning of 2000s1 .
In particular, weather-related natural disasters - hydrological, meteorological and climatological - have become extremely frequent, both in rich and in poor countries, due to changing climatic
conditions and widespread environmental degradation (Parry, Canziani, Palutikof, van der Linden, and Hanson, 2007).
Economic literature has mainly focussed on the impact such catastrophic events have on economic growth, without providing conclusive evidence. Several studies show a negative effect of
disasters on growth (Rasmussen, 2004; Raddatz, 2007; Noy, 2009; Strobl, 2012). Other contributes,
however, find no significant effect of disasters on growth (Albala-Bertrand, 1993), or sometimes
even a positive one (Skidmore and Toya, 2002; Loayza, Olaberrı́a, Rigolini, and Christiaensen,
2012). According to Kahn (2005), rich countries seem to suffer less from disasters, both in terms of
death toll and in terms of economic damages, their level of development acting as a form of insurance against natural adverse events. The positive effect in reducing the impact of natural disaster
is not limited to income levels, but includes also education, openness, institutional quality and
financial development (Rasmussen, 2004; Kahn, 2005; Toya and Skidmore, 2007; Noy, 2009). The
Intergovernmental Panel on Climate Change (2001) indeed reports that 65% of world deaths from
natural disasters between 1985 and 1999 took place in nations whose incomes were below $760
per capita.
The adaptation strategies to climate change and related natural disasters will certainly differ
a lot according to local institutional, political and financial constraints (Parry, Canziani, Palutikof,
van der Linden, and Hanson, 2007) but migration is one of the main possibilities individuals have
to escape from the most affected regions Mcleman and Smith (2006).
∗ Dipartimento di Scienze Economiche e Sociali & Mo.Fi.R.- Università Politecnica delle Marche - P.le Martelli 8,
60121 Ancona (Italy) - Email address: [email protected].
† Dipartimento di Scienze Economiche e Sociali & Mo.Fi.R., Università Politecnica delle Marche - P.le Martelli 8,
60121 Ancona (Italy) - Email address: [email protected].
1 See http://www.emdat.be/natural-disasters-trends.
1
Regional small-scale movements might be a first - maybe temporary - response but international long-distance mobility as well is a strategy likely to be pursued especially where the
consequences of climate change are registered not only in small regions but even at national or
supranational level. A number of recent studies have analysed the effect of natural disasters in
shaping international migration, showing that a rise in the number of people affected by weatherrelated disasters significantly acts as a push factor in increasing out-migration flows towards rich
countries (Reuveny and Moore, 2009; Drabo and Mbaye, 2011).
Developing countries, however, might benefit from larger remittance inflows from their diasporas abroad in the aftermath of a disaster. As a matter of fact, altruistic migrants could increase
their transfers to relatives in the country of origin to support them within the reconstruction process; in addition, migrants from countries which are often severely affected by natural catastrophes might take into account the higher risks their relatives back home have to face and hence
send larger amounts of money compared to migrants from “safer” regions.
The link between natural disasters and remittance flows to developing countries is still relatively unexplored in the literature at the aggregate level. Yang (2008) looks at the impact of
a specific type of natural disasters - hurricanes - on international financial flows to developing
countries across Africa, Asia and Latin America. While foreign aids seem to increase in the whole
sample of developing countries, remittances received from migrants abroad positively react to
hurricane exposure only in the very poor countries.
Mohapatra, Joseph, and Ratha (2012) also provide cross-country evidence of a positive response of remittances to natural disasters (meteorological, climatological, geophysical); such an
effect is shown to be stronger for those countries which have a larger diaspora abroad. In a country whose diaspora is equal to the 10% of population, remittances would rise by 0.5% of GDP for
each 1% of total population affected by a disaster in the year of the disaster and by a further 0.5%
in the following year.
The responsiveness remittances show to natural disasters, in addition, seems to be higher
compared to human-caused type of catastrophes like armed conflicts or global financial crises
(Naudé and Bezuidenhout, 2012).
With the present paper we build on this literature to offer further empirical evidence on the
impact that weather-related natural disasters may have on remittance flows towards developing
countries. The type of disasters we take into account are those potentially induced by climate
change and the data employed come from the EM-DAT database built by the Centre for Research
on the Epidemiology of Disasters (CRED).
Figure 1 shows a general upward trend in the number of disasters across all world region
in the period 1990-2010. The East Asia and Pacific region and Latin America and the Caribbean
have been hit particularly hard by catastrophic events in the last decades but also the frequency
of disasters in Sub-Saharan Africa significantly increased. However, there is great variability over
time in the share of population affected by disasters (figure 2).
Our empirical strategy is based on the estimation of the following baseline model:
REMi,t = β 1 Mi,t + β 2 GDPpci,t + γ1 DISi,t + γ2 DISi,t−1 + γ3 DISi,t−2|t−3 +
+δ4 p( DIS)i,t−5 + µi + τt + ei,t
(1)
where the dependent variable REMi,t represents the logarithm of total remittance inflows to
2
Figure 1: Number of weather-related disasters by region, 1990-2010
East Asia & Pacific
Europe & Central Asia
Latin America & Caribbean
Middle East & North Africa
South Asia
Sub-Saharan Africa
100
Number of disasters
50
0
100
50
10
20
05
20
00
20
95
19
90
10
19
20
05
20
00
20
95
19
90
10
19
20
05
20
00
20
95
19
19
90
0
Source: EM-DAT database, CRED.
Figure 2: Average share of population affected by region, 1990-2010
East Asia & Pacific
Europe & Central Asia
Latin America & Caribbean
Middle East & North Africa
South Asia
Sub-Saharan Africa
Share of population affected by disasters
.1
.05
0
.1
.05
10
20
05
20
00
20
95
19
90
10
19
20
05
20
00
20
95
19
90
10
19
20
05
20
00
20
95
19
19
90
0
Source: EM-DAT database, CRED.
country i at time t; Mi,t stands for the stock of migrants from country i in all OECD countries2 at
time t and GDPpci,t is the per capita GDP of country i at time t. All other country-level characteristics are taken into account by means of country fixed effects µi .
2 Since
annual country-level data on the overall size of the diaspora are not available, we use the total number of
migrants residing in OECD countries to proxy for it.
3
Our variables of interest are those related to disasters. In the baseline specification, we include
the intensity of disasters DISi,t , which should account for immediate adjustments in remittances
from abroad in the aftermath of a disaster; we also include the intensity of disasters that took
place in the year before (DISi,t−1 ) and between 2 and 3 years before (DISi,t−2|t−3 ) in order to distinguish between short term and medium term effects of disasters on remittances. The intensity
of disasters can be alternatively expressed as the frequency of catastrophic events, the number of
people affected by such events on the total population or the share of damages caused by disasters
on the country’s GDP.
In addition, to control for the fact that remittances from migrants abroad may be part of a
household-level insurance strategy against future adverse income shocks produced by natural
disasters, we also include p( DIS)i,t−5 in the specification, which represents the average probability of being affected by a disaster in country i in the period between 1970 and t − 5.
Robustness checks take into account alternative measure for remittance inflows (remittances
per migrant, remittances as a share of GDP) and different ways to express the timing of disasters.
The role of remittances as ex ante insurance would imply δ4 > 0, while a positive sign on γ1 ,
γ2 or γ3 can provide evidence for the contribution of transfers from abroad to the reconstruction
process after a disaster.
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