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Shaken, Not Stirred: The Impact of Disasters on International Trade

Shaken, Not Stirred: The Impact of Disasters on International Trade. Martin Gassebner, Alexander Keck and Robert Teh. Outline. Introduction and Motivation Literature Impact on Trade Empirical Specification Results Conclusions. Introduction and Motivation.

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Shaken, Not Stirred: The Impact of Disasters on International Trade

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  1. Shaken, Not Stirred:The Impact of Disasters on International Trade Martin Gassebner, Alexander Keck and Robert Teh

  2. Outline • Introduction and Motivation • Literature • Impact on Trade • Empirical Specification • Results • Conclusions

  3. Introduction and Motivation • Disasters are increasing in quantity and destructiveness • Possible explanations: • Better collection of data • Global warming (Emanuel 2005, Intergovernmental Panel on Climate Change 2001) • Increased population density, proximity to costal areas (Kunkel, Pielke and Chagnon 1999)

  4. Literature • Various effects of disasters have been explored: • Demographic trends and structures (Smith and McCarty 1996, Neumayer and Plümper 2006) • Determinants of mortality rates of disasters (Anbarci, Escaleras and Register 2005, Kahn 2005) • Macroeconomic impacts (Albala-Bertrand 1993, Pelling, Özerdem and Barakat 2002, Skidmore and Toya 2002, Auffret 2003, Freeman, Keen and Mani 2003, Rasmussen 2004) • International financial flows (Yang 2006)

  5. Impact on Trade I • Direct effects (human and physical capital loss) • Indirect effects (decline in economic activity) • Possible positive recovery effects • Disaster has to be of „large“ magnitude • Decision rule: 1,000 deaths; 1,000 injured; 100,000 affected or 1 billion $ damages • Corresponds to Munich Re definition of „great natural catastrophe“

  6. Impact on Trade II • Physical size of country might matter • Smaller countries are hit harder (e.g. Hurricane in Florida vs. Grenada) • Level of democracy might matter • Sen (1999): „There has never been a famine in a functioning multiparty democracy“ • Democracy might additionally be a proxy for: • Absence of corruption • Quality of bureaucracy

  7. Empirical specification I • Standard gravity approach: ln(rimpiet) = ciet + β1ln(gdpiet) + β2ln(gdppciet) + β3lockiet + β4ln(distiet) + β5Disasterit + β6Disasteret + βXiet + eiet Xiet includes dummies for: common border, same official language, common colonizer, colonial relationships (ever), colonial relationships (post 1945), same nation

  8. Empirical specification II • Two set-ups for ciet • Always time-specific fixed effects, plus • a) Importer- and exporter-specific fixed effects • b) Trading pair-specific fixed effects • Disaster variables: source EM-DAT 2005 • Count variable: Decision rule events per year • Count variable scaled by area • Interaction term: Count variable * Democracy score

  9. Results Ia (Gravity variables)

  10. Results Ib (Disaster Variables)

  11. Results II

  12. Results III

  13. Results IV

  14. Conclusions • Disasters reduce international trade flows • Smaller and undemocratic countries suffer more • Example one disaster in Costa Rica in 2003 would have resulted in a reduction of: Imports by 0,3% Exports by 3,9%

  15. Thank you!

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