Natural Disasters and Debt Financing Costs

Abstract

Using a comprehensive dataset of 272 large-scale natural disasters in 83 countries from 1986 to 2018, we find that disasters increase government debt financing costs (T-bill rates and 10-year government bond yields) but only in the middle- and low-income countries. This distinct response relative to high-income countries is due to lower levels of credit market depth, of private insurance penetration, and of central bank independence. The results for all natural disasters are driven by biological (epidemic) and climatological disasters — two types of hazards, the frequency and severity of which have been rising.

Stabilizing global foreign exchange markets in the time of COVID-19: The role of vaccinations

“…Emerging economies have relatively weak public health systems, poor and financially stressful populations, and inadequate social safety nets; thus, they are generally more vulnerable to abrupt shocks than developed economies. For instance, Fisera et al (2023) found that large-scale natural disasters increase government debt financing costs in middle-and low-income countries; however, these effects do not exist in developed economies. Concerning the impact of the pandemic, Harjoto et al (2021) revealed that during the COVID-19 outbreak, emerging stock markets tend to react more to pandemic news (e.g., new cases and new deaths) than developed stock markets.…”