Natural disasters, growth and institutions: a tale of two earthquakes

Guglielmo Barone () and Sauro Mocetti

No 949, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: We examine the impact of natural disasters on GDP per capita by applying the synthetic control approach. Our analysis encompasses two large-scale earthquakes that occurred in two different Italian regions in 1976 and 1980. We show that the short-term effects are negligible in both regions, though they become negative if we simulate the GDP that would have been observed in absence of financial aid. In the long-term, our findings indicate a positive effect in one case and a negative effect in the other, largely reflecting divergent patterns of the TFP. Consistently with these findings, we offer further evidence suggesting that a quake and related financial aids might either increase technical efficiency via a disruptive creation mechanism or reduce it by stimulating corruption, distorting the markets and deteriorating social capital. We finally show that the bad outcome is more likely to occur in areas with lower pre-quake institutional quality. As a result, our evidence suggests that natural disasters are likely to exacerbate differences in economic and social development.

Keywords: natural disasters; economic growth; aids; corruption; social capital; synthetic control approach (search for similar items in EconPapers)
JEL-codes: H84 O40 Q54 R11 (search for similar items in EconPapers)
Date: 2014-01
New Economics Papers: this item is included in nep-gro and nep-soc
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (117)

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Journal Article: Natural disasters, growth and institutions: A tale of two earthquakes (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_949_14

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