The effectiveness of debt relief in mitigating the macroeconomic consequences of natural disasters

Howard, Emma; Murphy, Kean; Nientker, Wouter; El-Ouaghlidi, Karim; Schmidt, Harry

The effectiveness of debt relief in mitigating the macroeconomic consequences of natural disasters

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Howard, E, Murphy, K, Nientker, W, El-Ouaghlidi, K, Schmidt, H. The effectiveness of debt relief in mitigating the macroeconomic consequences of natural disasters. 2020. handle: http://hdl.handle.net/10230/46434

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Abstract

We employ a dynamic panel fixed effects model to assess the macroeconomic consequences of natural disasters in Africa and the effectiveness of debt relief in promoting post-disaster recovery. Our results show that floods and droughts have a negative contemporaneous effect on GDP growth which, in the case of floods, is recovered at the second lag. General debt relief - consisting of debt forgiveness, rescheduling, and significant increases in ODA - has no impact on economic growth. However, significant increases in ODA in the aftermath of disasters have a positive effect that is increasing in disaster severity, suggesting that it is an effective post-disaster recovery instrument. Debt-to-GDP growth and crop production growth are also considered in the analysis.