Economic Growth and Risk Taking: Is it Rational to Suffer from Increasing Disaster Losses?

Abstract

This article draws from a study that investigates the link between development, economic growth and the economic losses from natural hazards. Increasing investments in disaster risk reduction have led to a significant reduction in human casualties, but economic losses from natural disasters have been growing as fast or even faster than economic growth in both rich and poor countries. The analysis suggests indeed that economic growth leads to better defenses but also more risk taking, making average disaster losses grow with income. In the future, larger resources and better defenses are likely to make natural disasters become rarer but more severe. An obvious consequence is the need for more resilience, i.e. an improved ability to deal with and recover from the rare events that exceed protection capacity. Crisis management and post-disaster support, and especially international post-disaster support schemes are thus likely to play an increasingly important role in the future.

Keywords: development, economic growth, risk, natural disaster, economic losses

JEL Classification: O10, O44, Q01, Q54