Natural disaster mitigation in developing countries : the role of trade openness

Abstract

Employing fixed effects estimations in a panel of 137 countries over 37 years, this study empirically investigates the relationship between trade openness and natural disaster fatality rates in developing countries. The findings suggest that trade openness reduces fatality rates from natural disasters in general in the developing world, and in particular losses resulting from earthquakes, storms and extreme temperature disasters. Specifically, our estimates suggest that for developing countries, increasing the trade ratio by 10% is significantly associated with a 2-3% reduction in subsequent natural disaster fatality rates. Building upon the initial findings, the analysis further suggests that the mitigating effect of trade openness on natural disaster losses arises from knowledge- and technology transfers, international collaboration, and improvements of infrastructure and investment climate. The established reduction in fatalities from trade openness is robust to various specifications; however, the extent to which trade openness mitigates losses depends on disaster type and countryspecific features such as development level, degree of democracy and the efficiency of the public sector. The central policy implication of our findings is that trade policy may be a potential tool for developing countries to mitigate natural disaster risk without compromising economic development.