Natural-disaster shocks and government's behavior: Evidence from middle-income countries

This paper aims to examine the causal relationship between natural disasters, budget deficit, public debt and economic growth for a global panel consisting of 9 middle income countries, using a panel cointegration and a Granger non-causality test. The panel model was used in this study from the period 2000 to 2014. Our results indicate that there is a unidirectional causality from natural disaster measures to budget deficit. However, we notice that there is bidirectional causality between public debt and budget deficit. Natural disasters lead to an increase in public debt to finance reconstruction activities. They aggravate the impact on the budgetary resources which are often limited to absorb the effects of external shocks.