Do natural disasters affect economic growth? The role of human capital, foreign direct investment, and infrastructure dynamics

Abstract

Natural disasters do occur and have become a global problem due to increasing intensity. Developing countries are mostly affected due to natural disasters owing to a poor environment, feeble adaptation, impoverished socioeconomic conditions, poor infrastructure, limited resources, and unstable institutions. The SDG 11.5 target which highlights the mitigation of loss due to natural disasters––remains crucial to achieving sustainable cities and human settlements––but the literature is limited on this scope. Thus, this research contributes to the literature by incorporating an infrastructure index, foreign direct investment (FDI), human capital index, globalization, and capital formation into the disaster-growth debate across four-income groups in 98 countries from 1995 to 2019. We developed infrastructure and human capital indices using a standard procedure across all income groups. The two-step generalized method of moments employed herein confirmed the income reduction effect of natural disasters. While the economic cost of natural disasters is relatively high in low-income countries and mild in high- and upper-middle-income countries. Besides, infrastructural development, FDI, human capital, globalization, and gross fixed capital formation also affect economic growth across income groups. Thus, the enhancement of socio-economic policies could decline economic losses, especially in vulnerable and poor settlements in developing countries.

Keywords

• Economic growth
• Human capital
• Globalization
• Natural disasters
• Sustainable development
• Two-step GMM