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Hurricanes: Intertemporal Trade and Capital Shocks

Author

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  • John C. Bluedorn
Abstract
Hurricanes in the Caribbean and Central America represent a natural experiment to test the intertemporal approach to current account determination. The intertemporal approach allows for the possibility of intertemporal trade, via international borrowing. Previous tests of intertemporal current account (ICA) models have typically relied upon the identification of shocks in a VAR framework with which to trace the current account response. Hurricane shocks represent exactly the kind of temporary, country-specific shock required by the theory, allowing for the intertemporal current account response to be estimated without recourse to a VAR shock decomposition. Using data on the economic damages attributable to a hurricane, I estimate the economy`s response to a hurricane-induced capital shock within a fixed effects panel model. The current account response qualitatively conforms to the S-shaped response predicted by the theory, indicating that countries are engaging in intertemporal trade. However, the exact timing and magnitude of the response differs from a standard ICA model`s smooth behavior. A hurricane which destroys capital valued at one year`s GDP pushes the current account over GDP into deficit by 5 percentage points initially. 3-8 years after such a hurricane, the current account over GDP moves into surplus at 2.7 percentage points.

Suggested Citation

  • John C. Bluedorn, 2005. "Hurricanes: Intertemporal Trade and Capital Shocks," Economics Series Working Papers 241, University of Oxford, Department of Economics.
    • Handle: RePEc:oxf:wpaper:241
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    Cited by:

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    2. Tutt, Jascha & Berlemann, Michael & Steinhardt, Max, 2014. "Behavioural Responses on Natural Disasters. Empirical Evidence from a Natural Experiment in Germany," VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100526, Verein für Socialpolitik / German Economic Association.
    3. Eric Nazindigouba Kere & Somlanaré Romuald Kinda & Rasmané Ouedraogo, 2015. "Do Natural Disasters Hurt Tax Resource Mobilization?," Working Papers halshs-01242968, HAL.
    4. Eric Strobl, 2011. "The Economic Growth Impact of Hurricanes: Evidence from U.S. Coastal Counties," The Review of Economics and Statistics, MIT Press, vol. 93(2), pages 575-589, May.
    5. Eduardo Cavallo & Ilan Noy, 2009. "The Economics of Natural Disasters - A Survey," Working Papers 200919, University of Hawaii at Manoa, Department of Economics.
    6. Jiandong Ju & Shang-Jin Wei, 2007. "Current Account Adjustment: Some New Theory and Evidence," NBER Working Papers 13388, National Bureau of Economic Research, Inc.
    7. Quy Ta & Yothin Jinjarak & Ilan Noy, 2022. "“How Do Shocks Affect International Reserves? A Quasi-Experiment of Earthquakes”," Open Economies Review, Springer, vol. 33(5), pages 945-971, November.
    8. Yang Dean, 2008. "Coping with Disaster: The Impact of Hurricanes on International Financial Flows, 1970-2002," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 8(1), pages 1-45, June.
    9. Eduardo Cavallo & Ilan Noy, 2010. "The Aftermath of Natural Disasters: Beyond Destruction," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 11(2), pages 25-35, July.
    10. Eduardo Cavallo & Ilan Noy, 2010. "The Aftermath of Natural Disasters: Beyond Destruction," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 11(02), pages 25-35, July.
    11. Lopez, Ramon, 2009. "Natural disasters and the dynamics of intangible assets," Policy Research Working Paper Series 4874, The World Bank.
    12. Elif Arbatli, 2008. "Futures Markets, Oil Prices and the Intertemporal Approach to the Current Account," Staff Working Papers 08-48, Bank of Canada.
    13. Tam Bang Vu & Eric Iksoon Im & Karla Hayashi & Ryan Torio, 2017. "Cyclones, Deforestation, and Production of Food Crops in Vietnam," Economics of Disasters and Climate Change, Springer, vol. 1(3), pages 245-262, October.
    14. Michael Berlemann & Max Steinhardt & Jascha Tutt, 2015. "Do Natural Disasters Stimulate Individual Saving? Evidence from a Natural Experiment in a Highly Developed Country," SOEPpapers on Multidisciplinary Panel Data Research 763, DIW Berlin, The German Socio-Economic Panel (SOEP).
    15. Eric Strobl, 2009. "The impact of hurricane strikes on local cropland productivity: Evidence from the Carribean," Working Papers hal-00393883, HAL.
    16. Nekeisha Spencer & Mikhail-Ann Urquhart, 2016. "Hurricanes? Let's Make a Move," CESifo Working Paper Series 6081, CESifo.
    17. Daniel Osberghaus, 2019. "The Effects of Natural Disasters and Weather Variations on International Trade and Financial Flows: a Review of the Empirical Literature," Economics of Disasters and Climate Change, Springer, vol. 3(3), pages 305-325, October.
    18. Lueth Erik & Ruiz-Arranz Marta, 2008. "Determinants of Bilateral Remittance Flows," The B.E. Journal of Macroeconomics, De Gruyter, vol. 8(1), pages 1-23, October.
    19. Yabin Wang, 2017. "How Do Emerging Markets Respond to Macroeconomic Shocks? - Dynamic Panel Evidence on the Effects of Disasters," Open Economies Review, Springer, vol. 28(4), pages 731-760, September.

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    More about this item

    Keywords

    Hurricanes; Natural Experiment; Current Account Dynamics;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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