Insuring Growth: The Impact of Disaster Funds on Economic Reconstruction in Mexico

36 Pages Posted: 19 Jul 2016

See all articles by Alain de Janvry

Alain de Janvry

University of California, Berkeley - The Richard & Rhoda Goldman School of Public Policy

Alejandro del Valle

Georgia State University

Elisabeth Sadoulet

University of California, Berkeley - The Richard & Rhoda Goldman School of Public Policy

Date Written: June 21, 2016

Abstract

Climate change has considerably increased the likelihood of experiencing extreme weather events. Governments in developing countries have a limited capacity to smooth the losses created by extreme weather, and could potentially benefit from the introduction of disaster funds, that is, ex-ante budgeting allocations for post-disaster reconstruction. So far the implementation of disaster funds has been limited, in part because it is still unclear whether disaster funds provide a cost-effective way of coping with these losses. By taking advantage of the sharp rules that govern the municipal-level eligibility for reconstruction funds in Mexico, this paper provides some of the first estimates of the impact of disaster funds on local economic activity. The main finding is that access to disaster funding boosts local economic activity between 2 and 4 percent in the year following the disaster. Another finding is that the positive impact of disaster funds on local economic recovery can persist for as long as a year and a half after the disaster. Consistent with these findings, we additionally show that access to disaster funding leads to a large and sustained 76 percent increase in the growth of local construction employment. This labor market impact slightly precedes the overall increase in local economic activity.

Keywords: Social Risk Management, Hazard Risk Management, Public Finance Decentralization and Poverty Reduction, Adaptation to Climate Change, Public Sector Economics, Disaster Management

Suggested Citation

de Janvry, Alain and del Valle, Alejandro and Sadoulet, Elisabeth, Insuring Growth: The Impact of Disaster Funds on Economic Reconstruction in Mexico (June 21, 2016). World Bank Policy Research Working Paper No. 7714, Available at SSRN: https://ssrn.com/abstract=2811362

Alain De Janvry (Contact Author)

University of California, Berkeley - The Richard & Rhoda Goldman School of Public Policy ( email )

2607 Hearst Avenue
Berkeley, CA 94720-7320
United States

Alejandro Del Valle

Georgia State University ( email )

35 Broad Street
Atlanta, GA 30303-3083
United States

Elisabeth Sadoulet

University of California, Berkeley - The Richard & Rhoda Goldman School of Public Policy ( email )

2607 Hearst Avenue
Berkeley, CA 94720-7320
United States

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