Impact of Natural Disasters on Economic Development: A Comparative Study Between Middle-Income and High-Income Countries

Abstract

Natural disasters usually slow down economic growth due to their numerous effects. The goal of this research is to investigate the impact of natural disasters on the GDP and HDI of high- and middle-income countries. For this reason, data from 20 countries, split into two groups: high-income and middle-income, over 25 years (1999–2023), were studied. The study used the Hausman test and the Breusch-Pagan Lagrange Multiplier test to figure out which model specification was best: fixed effects or random effects. Following that, tests for multicollinearity, heteroskedasticity, and autocorrelation were run, and the FGLS regression models were estimated based on the results. The regression results showed that natural disasters have a substantial adverse impact on the GDP growth of middle-income countries, but they don't have any effect on high-income countries. Natural disasters also have an enormous and detrimental impact on the HDI of middle-income economies. But this result doesn't fit with the high-income countries. Unemployment, education, and the size of the population are also important factors that affect the economic growth of high- and middle-income countries. The government and policymakers, especially in middle-income countries, can use these results to make policy decisions and give greater resources to certain areas to lessen the damage that a natural disaster may cause.