Is growth at risk from natural disasters? Evidence from quantile local projections

Over the past three decades, natural disasters have become increasingly frequent and intense, posing significant risks to economic activity, particularly in developing countries. This paper investigates the impact of natural disasters on economic growth, focusing on the 10th percentile of GDP growth to capture the worst recessions experienced by countries. Using the Quantile Local Projections (QLP) method on a panel of developing countries, we explore whether these disaster shocks worsen economic downturns and delay recoveries. Our findings reveal that natural disasters tend to exacerbate severe economic contractions in developing countries, causing a lasting decrease in the lower tail of GDP growth distribution. This effect is especially pronounced in the agricultural and industrial sectors, with the services sector showing a less persistent response. Moreover, high-income developing countries and those with better political institutions better counteract the adverse effects of natural disasters and exhibit greater resilience when output is extremely low.