The Political Economy of “Natural” Disasters
Executive Summary — With the onset of global warming, it is likely that the incidence of natural shocks will only increase in the years ahead. In addition, rising inequality between rich and poor countries combined with a commitment on the part of developed countries to increase foreign aid disbursements indicates that international relief in natural disasters will grow. Disaster relief is one of the most basic and important transfers of wealth between developed and developing countries. This paper argues that the relief enters and affects a highly political situation. It also argues that the political economy of natural disasters is understandable and predictable, and may be mitigated. Key concepts include:
- Managed correctly, disaster assistance can smooth shocks to poor countries that might otherwise be debilitating. Like all transfers of wealth, however, it can distort incentives or be manipulated by self-interested leaders.
- Policymakers ought to craft disaster relief to minimize these distortions and manipulations. Domestic policies and the actions of international relief should be designed to mitigate, rather than exacerbate, the wrath of nature.
Natural disasters occur in a political space. Although events beyond our control may trigger a disaster, the level of government preparedness and response greatly determines the extent of suffering incurred by the affected population. We use a political economy model of disaster prevention, supported by case studies and preliminary empirics to explain why some governments prepare well for disasters and others do not. We show how the presence of international aid distorts this choice and increases the chance that governments will under-invest. Policy suggestions that may alleviate this problem are discussed.