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Impact of Natural Disasters on Income Inequality in Sri Lanka

Author

Listed:
  • Subhani Keerthiratne

    (Department of Economics, University of Sussex
    Central Bank of Sri Lanka, Colombo, Sri Lanka)

  • Richard S.J. Tol

    (Department of Economics, University of Sussex
    Department of Spatial Economics, Vrije Universiteit Amsterdam
    Institute for Environmental Studies, Vrije Universiteit Amsterdam
    Tinbergen Institute, Amsterdam)

Abstract

We explore the relationship between natural disasters and income inequality in Sri Lanka as the first study of this nature for the country. The analysis uses a unique panel data set constructed for the purpose of this paper. It contains district inequality measures based on household income reported in six waves of the Household Income and Expenditure Survey of Sri Lanka during the period between 1990 and 2013, data on disaster affected population and other economic and social indicators. Employing a panel fixed effects estimator, we find that contemporaneous natural disasters and their immediate lags significantly and substantially decrease inequality in per adult equivalent household income as measured by the Theil index. Findings are robust across various inequality metrics, sub-samples and alternative estimators such as Ordinary Least Squares and System GMM. However, natural disasters do not affect household expenditure inequality. Either households behave as if they have a permanent income or all households reduce their expenditure proportionately irrespective of their income level in responding to natural disasters. Natural disasters decrease non-seasonal agricultural and non-agricultural income inequality but increase seasonal agricultural income inequality. Income of richer households is mainly derived from non-agricultural sources such as manufacturing and business activities and non-seasonal agricultural activities. Poorer households have a higher share of agricultural income.

Suggested Citation

  • Subhani Keerthiratne & Richard S.J. Tol, 2017. "Impact of Natural Disasters on Income Inequality in Sri Lanka," Working Paper Series 0817, Department of Economics, University of Sussex Business School.
    • Handle: RePEc:sus:susewp:0817
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    More about this item

    Keywords

    Natural disasters; economic impact; income inequality;
    All these keywords.

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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