The impact of natural disasters on remittance inflows to developing countries

Transcription

1 The impact of natural disasters on remittance inflows to developing countries Giulia Bettin Alberto Zazzaro November 27, 212 Extended abstract The number and the frequency of natural disasters have undoubtedly increased in the last decades (Cavallo and Noy, 29). Between 1975 and 211 the number of disasters increased from less than 1 to almost 35 events per year, with peaks of more than 5 disasters at the beginning of s 1. 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, 27). 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, 24; Raddatz, 27; Noy, 29; Strobl, 212). Other contributes, however, find no significant effect of disasters on growth (Albala-Bertrand, 1993), or sometimes even a positive one (Skidmore and Toya, 22; Loayza, Olaberría, Rigolini, and Christiaensen, 212). According to Kahn (), 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, 24; Kahn, ; Toya and Skidmore, 27; Noy, 29). The Intergovernmental Panel on Climate Change (21) indeed reports that 65% of world deaths from natural disasters between 1985 and 1999 took place in nations whose incomes were below $76 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, 27) but migration is one of the main possibilities individuals have to escape from the most affected regions Mcleman and Smith (26). Dipartimento di Scienze Economiche e Sociali & Mo.Fi.R.- Università Politecnica delle Marche - P.le Martelli 8, 6121 Ancona (Italy) - address: g.bettin@univpm.it. Dipartimento di Scienze Economiche e Sociali & Mo.Fi.R., Università Politecnica delle Marche - P.le Martelli 8, 6121 Ancona (Italy) - address: a.zazzaro@univpm.it. 1 See 1

2 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, 29; Drabo and Mbaye, 211). 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 (28) 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 (212) 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 1% of population, remittances would rise by.5% of GDP for each 1% of total population affected by a disaster in the year of the disaster and by a further.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, 212). 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 -. 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: REM i,t = β 1 M i,t + β 2 GDPpc i,t + γ 1 DIS i,t + γ 2 DIS i,t 1 + γ 3 DIS i,t 2 t 3 + +δ 4 p(dis) i,t 5 + µ i + τ t + ɛ i,t (1) where the dependent variable REM i,t represents the logarithm of total remittance inflows to 2

3 Figure 1: Number of weather-related disasters by region, - 1 East Asia & Pacific Europe & Central Asia Latin America & Caribbean 5 Number of disasters 1 Middle East & North Africa South Asia Sub-Saharan Africa 5 Source: EM-DAT database, CRED. Figure 2: Average share of population affected by region, -.1 East Asia & Pacific Europe & Central Asia Latin America & Caribbean Share of population affected by disasters Middle East & North Africa South Asia Sub-Saharan Africa Source: EM-DAT database, CRED. country i at time t; M i,t stands for the stock of migrants from country i in all OECD countries 2 at time t and GDPpc i,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 µ i. 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

4 Our variables of interest are those related to disasters. In the baseline specification, we include the intensity of disasters DIS i,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 (DIS i,t 1 ) and between 2 and 3 years before (DIS i,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 197 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 δ 4 >, while a positive sign on γ 1, γ 2 or γ 3 can provide evidence for the contribution of transfers from abroad to the reconstruction process after a disaster. References ALBALA-BERTRAND, J. M. (1993): Political Economy of Large Natural Disasters: With Special Reference to Developing Countries, no in OUP Catalogue. Oxford University Press. CAVALLO, E., AND I. NOY (29): The Economics of Natural Disasters: A Survey, IDB Working Paper Series 124, Inter-American Development Bank, Research Department. DRABO, A., AND L. M. MBAYE (211): Climate Change, Natural Disasters and Migration: An Empirical Analysis in Developing Countries, IZA Discussion Papers 5927, Institute for the Study of Labor (IZA). FREUND, C., AND N. SPATAFORA (28): Remittances, transaction costs, and informality, Journal of Development Economics, 86(2), KAHN, M. E. (): The Death Toll from Natural Disasters: The Role of Income, Geography, and Institutions, The Review of Economics and Statistics, 87(2), LOAYZA, N. V., E. OLABERRÍA, J. RIGOLINI, AND L. CHRISTIAENSEN (212): Natural Disasters and Growth: Going Beyond the Averages, World Development, 4(7), MCLEMAN, R., AND B. SMITH (26): Migration as an adaptation to climate change, Climatic Change, 76, MOHAPATRA, S., G. JOSEPH, AND D. RATHA (212): Remittances and natural disasters: ex-post response and contribution to ex-ante preparedness, Environment, Development and Sustainability, 14(3),

5 NAUDÉ, W., AND H. BEZUIDENHOUT (212): Remittances provide resilience against disasters in Africa, UNU-MERIT Working Paper Series 26, United Nations University, Maastricht Economic and social Research and training centre on Innovation and Technology. NOY, I. (29): The macroeconomic consequences of disasters, Journal of Development Economics, 88(2), PARRY, M., O. CANZIANI, J. PALUTIKOF, P. VAN DER LINDEN, AND C. HANSON (eds.) (27): Climate Change 27: Impacts, Adaptation and Vulnerability. Cambridge University Press, Contribution of Working Group II to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change, 27. RADDATZ, C. (27): Are external shocks responsible for the instability of output in low-income countries?, Journal of Development Economics, 84(1), RASMUSSEN, T. N. (24): Macroeconomic Implications of Natural Disasters in the Caribbean, IMF Working Papers 4/224, International Monetary Fund. REUVENY, R., AND W. H. MOORE (29): Does Environmental Degradation Influence Migration? Emigration to Developed Countries in the Late 198s and s, Social Science Quarterly, 9(3), SKIDMORE, M., AND H. TOYA (22): Do Natural Disasters Promote Long-Run Growth?, Economic Inquiry, 4(4), STROBL, E. (212): The economic growth impact of natural disasters in developing countries: Evidence from hurricane strikes in the Central American and Caribbean regions, Journal of Development Economics, 97(1), TOYA, H., AND M. SKIDMORE (27): Economic development and the impacts of natural disasters, Economics Letters, 94(1), YANG, D. (28): Coping with Disaster: The Impact of Hurricanes on International Financial Flows, , The B.E. Journal of Economic Analysis & Policy, 8(1), 13. 5