International Market Interactions, Institutions, and the Costs of Natural Disasters (InterCOND)

• Applicant: Dr. Jasmin Gröschl
• Subject Area: Economic Policy, Applied Economics ; Economic Theory
• Term: from 2016 to 2022
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 318600342

Natural hazards can result in severe economic shocks, with consequences on human and economic development. Moreover, anthropogenic climate change could increase the frequency and severity of such events. Thus, studying how past natural disasters shaped economic outcomes and how these had been conditioned by institutional setups or by trade openness, migration, and capital flows, can provide important insights into how to cope with the effects of climate change in the future.Empirical studies suggest that similar hazards have different effects throughout the world and that countries' institutions as well as their embeddedness in international markets are important in adapting to natural disasters. However, most of the empirical literature suffers from a number of problems. First, studies have usually used information on the incidence of natural disasters from databases drawn from insurance records or news. This introduces severe reporting and endogeneity biases, as both insurance penetration and damage caused are correlated with development. To tackle this issue, Felbermayr and Gröschl (2014) have proposed a database, ifo GAME, which collects information on geological and meteorological events from primary sources. Second, disasters are often local events; hence, mapping them to countries of heterogeneous size can result in measurement error and attenuation bias. This problem can be resolved by matching recently available global data at the grid-level to the ifo GAME database.This project aims at developing such an extended database and to exploit it to answer a number of research questions situated at the cross-roads of environmental economics, development economics and international trade. Given the seminal features of the underlying disaster and climate data, the results obtained will significantly support evidence-based policy making for climate action in the context of sustainable development. More precisely, an empirical analysis of the consequences of natural hazards and disasters at the regional- and country-level allows studying how openness to trade, access to financial markets, institutional features, and development affect economic resilience.The research strategy follows three steps: First, I will investigate how natural hazards and disasters affect international transactions and the pattern of economic specialization. Second, I will analyze the welfare losses due to natural disasters at the local level and the nexus between hazard risks and the determinants of disaster resilience using unique grid-cell level data. Third, I will identify how trade openness and geography shape the macroeconomic impact of natural disasters at the local level, conducting a spatial analysis on China, and how firm behavior is affected by natural disasters looking at Chinese firms.

• DFG Programme: Research Grants
• International Connection: United Kingdom
• Co-Investigators: Professor Gabriel Felbermayr, Ph.D.; Thomas Steinwachs; Shuyao Yang
• Cooperation Partner: Professor Zhihong Yu, Ph.D.