# **I. Introduction**

Recent work at the World Bank and elsewhere has emphasized the importance of different types of capital in determining a country’s productive potential (World Bank, 2006). In particular it distinguishes physical (produced) capital from human, natural and social capital. Each is an important component of wealth and over time, as development takes place, the relative roles of different types of capital change (natural capital as a share of the total declines for example).

One of the issues that arises in understanding the impacts of disasters is how these different types of capital are affected, how they recover after the disaster and how each of them has an impact on output at the national and regional levels.

We postulate that the impact of natural disasters on output is indirect, that is, the natural disasters affect output through their impacts on the different forms of capital (inputs) that make up output. In this regard, the aim of this study is to see how disasters affect the measures of each type of capital and how these changes in capital then impact on output. As expected these impacts will have some dynamic profile and we seek to understand this as much as possible.

# **II. Four types of capital and data description**

In Markandya and Pedroso-Galinato (2007), the production function at the national level was based on four types of capital:

- a. Produced or physical capital (PK) – an aggregate of the value of equipments, machinery, structures (including infrastructure) and urban land;

- b. Human capital (H) – there are two alternative measures: human capital related to educational attainment (HS), and human capital as part of the intangible capital residual (HR). The _intangible capital residual_ consists of human capital and the quality of formal and informal institutions. It is measured as the difference between total wealth and the produced and natural capital (World Bank, 2006).

- c. Production and net imports of non-renewable energy resources (E) – sum of the values of oil, natural gas, hard coal and lignite.

- d. Land resources (L) – aggregated value of cropland, pastureland and protected areas.

Markandya and Pedroso-Galinato (2007) dealt with cross-sectional data of 208 countries for 2000. The underlying production function was assumed to take a nested CES form. The results indicated a relatively high elasticity of substitutability between different types of capital; for example, loss of natural capital could be made up relatively easily by increases in human and physical capital. In addition, the paper also showed that the efficiency of all capital is significantly influenced by changes in economic indicators (trade openness and private sector investment).

For this study, data on the four types of capital are obtained for three periods – 1995, 2000 and 2005 and for 210 countries, from an updated database underpinning the wealth estimates of nations (World Bank, 2006; G. Ruta and K. Hamilton, personal communication, 2009). The data are measured in per capita values at 2005 constant prices. An econometric analysis is conducted for a panel data of capital, along with the data on the magnitude of natural disasters for the same 2