Economic development and losses due to natural disasters: The role of hazard exposure

Our contribution is to show that the relationship between wealth and disasters is mainly formed by the exposure to disaster hazard. We first build a simple analytical model that demonstrates how countries that face a low hazard of disasters are likely to see first increasing losses and then decreasing ones with increasing economic development. At the same time, countries that face a high hazard of disasters are likely to experience first decreasing losses and then increasing ones with increasing economic development. We then use a cross-country panel dataset in conjunction with a hazard exposure index to investigate whether the data is consistent with the predictions from the model. In line with our model, we find that the relationship of losses with wealth crucially depends on the level of hazard of natural disasters faced by countries.

► We study the relationship between wealth and disasters. ► We study a simple analytical model to analyze the relationship between disaster hazard and wealth. ►We build a panel dataset with a risk exposure index and find that the losses-wealth relationship depends on risk exposure. ► Low hazard countries are found to have an inversely u-shaped relationship between wealth and disaster losses. ► High hazard countries have a u-shaped relationship between wealth and losses.