Natural disasters and economic development: Microeconometric evidence from Nepal's 2015 earthquake

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Increasing global temperatures are predicted to lead to a growing risk of natural disasters, such as droughts and storms. These and other natural disasters, such as earthquakes, can have profound economic impacts, well beyond the immediate destruction they cause. The main goal of the project is therefore to study effects of natural disasters on economic development, and channels through which these effects are mediated. We do so using the large earthquake that hit Nepal in 2015 as a natural experiment. Because of the availability of unique data Nepal provides a particularly useful case study. Methodologically, we will exploit the exogenous nature of the earthquake and employ econometric techniques from the natural experiments literature to identify causal effects of the earthquake.Understanding the medium- to long-run effects of natural disasters is particularly important for less developed regions of the world for a number of reasons: In poor countries, fewer resources are available to prepare for disasters and to deal with their effects. Many households are active in the often particularly strongly affected agricultural sector or otherwise dependent on natural resources. Living in or close to poverty also implies that even small negative shocks may have long-lasting effects, e.g. through malnutrition or changes in educational decisions. Further, less developed countries often have political economy related problems, such as weak institutions or ethnic favoritism, which may hamper an effective response to disasters. We propose to study the effect of the earthquake in three important domains of economic development: first, it’s effect on schooling outcomes; second, the effect on the subsequent use of the natural resources. Third, we also investigate political economy issues and study determinants of how aid is distributed. To study educational outcomes and associated channels, we have access to full data on nation-wide exam results for years before and after the earthquake, more than 2 million observations overall. To study deforestation, we use survey data on the use of wood as well as data on deforestation derived from satellite pictures. To study the political economy behind the distribution of aid, we have detailed data on objective measures of housing destruction for more than 1 million households as well as the amount of aid received by these households.The immediate goal of the project is to contribute to a better understanding of how households and the environment are affected by disasters, and to gain an understanding of political economy issues around disaster aid. This in turn has practical implications for applied questions around development and disaster aid. More generally, the proposed work can contribute towards a better understanding of constraints and challenges for managing limited resources (such as forests, resources allocated to human capital formation, and funds allotted to reconstruction) in the development process.