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The theory on the disaster impacts on firm growth is ambiguous and the empirical evidence on this topic is scarce, which hampers the design of disaster risk reduction and climate change adaptation policies. This paper estimates growth models of the impacts of natural disasters on labour, capital, and value-added growth of firms in the short run, and identifies the role of financial constraints in shaping disaster outcomes. The analysis uses a comprehensive enterprise census data (2000)(2001)(2002)(2003)(2004)(2005)(2006)(2007)(2008)(2009) and also two different types of disaster measures from Vietnam: the physical intensity measures and the socioeconomic damage measures. We apply the Blundell-Bond generalized method of moments (GMM) to estimate firm level disaster impacts, and find robust evidence that natural disasters on average increase firm growth significantly. We also find stronger positive impacts in labour and output growth for more constrained firms. We argue that this occurs because financially more constrained firms substitute labour for capital during the reconstruction phase after a disaster.
The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.
The theory about the impacts of natural disasters on firms is ambiguous and the empirical evidence on this topic is scarce, which hampers the design of disaster risk reduction and climate change adaptation policies. In this paper we identify the short-run impacts of storms and floods on firm growth in labor, capital, and sales, using Enterprise Census data (2000–2014) for Vietnam. We define storms and floods with three different disaster measures: physical intensities, number of deaths, and economic damage. The performance of these disaster measures is compared by estimating dynamic growth models using the Blundell–Bond system generalized method of moments. We find evidence that flooding increases labor growth and capital growth but reduces sales growth significantly up to 3 years after flooding. We also find some evidence of positive impacts on labor growth and capital growth but mostly negative impacts on sales growth for storms within 3 years after storms strike. The impacts of floods and storms on firm growth are more pronounced and persistent for small and medium sized firms. Finally, unlike at the macro level, the direction and scale of disaster impacts found at the firm level are fairly consistent across the three disaster measures.
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