Economic development and natural disasters: A satellite data analysis

In this study we examine the impact of large-scale natural disasters on economic development. A major obstacle in exploring this relationship is the poor data quality on GDP per capita in low-income countries, while at the same time more than 90% of all disasters that happen worldwide occur in these particular countries. To overcome this problem, we use data based on satellite images of the night-time light intensity in a specific country or region which is shown to be highly correlated with income per capita. After testing for the sensitivity of the results, our main findings suggest that natural disasters reduce the amount of lights visible from outer space significantly in the short run. To be more precise, we demonstrate that climatic and hydrological disasters cause a large drop in the luminosity in developing and emerging market countries, while geophysical and meteorological disasters decrease light intensity more in industrialized countries. It turns out that using reported real GDP per capita figures underestimates the true impact. Besides, a large part of the economic consequences of the natural events is explained by their regional impact. However, in the long run most of the disaster effect has disappeared. Finally, the impact of a disaster depends partly on the size and scope of the natural catastrophe, the geographical location, the degree of financial development of a country and the quality of the political institutions present.