inequality of human capital may increase in the long run.<sup>4</sup> The above second and third points imply the possibility of poverty traps. First, the impacts may be asymmetric between children with and without enough human capital.<sup>5</sup> Second, in the recovery process, human capital accumulation prior to disasters enables the continuation of human capital investment. That is, the inequality in the initial stock of human capital may exacerbate divergence in human capital accumulation owing to perturbations caused by natural hazards. Empirical analysis will test the above hypotheses.

In the empirical analysis of this paper, we use panel data from household surveys that the International Food Policy Research Institute has conducted in Bangladesh, Ethiopia and Malawi (see Del Ninno, et al., 2001; Gilligan and Hoddinott. 2005; Quisumbing, 2005; Sharma, 2005). Each country provides a natural experiment with natural hazards by which to test the above propositions. Bangladesh had a severe flood in 1998, and both Ethiopia and Malawi experienced large droughts in 2001 (followed by a flood in 2001-2002 in Malawi). Though in each country the initial round was conducted at different times, we have information on anthropometry for children aged below 60 months before or immediately after the disaster. Coupled with the information on child schooling in the post-disaster round, we can estimate transition equations of human capital formation from the pre-school to school stages. Among these countries, we observe differences in the pattern of natural hazards. Our data show that while the 1998 flood was a single severe event for many households in our sample in Bangladesh, droughts were rather frequent in Ethiopia and Malawi (among which the 2001 drought was the most severe).

The paper is organized as follows. The next section describes a simple model to describe how natural hazards affect human capital formation in the early childhood and school-age stages. Sections 3 and 4 discuss the econometric framework and data respectively.

In Section 5, the empirical results show that the accumulation of human capital prior to disasters helps children maintain investments in the post-disaster period. Biological human capital formed in early childhood (nutritional status) plays the role of insurance against disasters by increasing schooling investment and outcome, despite negative disaster impacts on the investment. In Bangladesh, children with more biological human capital are less affected by the adverse effects of the flood, and the rate of investment increases with the initial human capital stock in the recovery process after the disaster. In Ethiopia and Malawi where droughts are rather frequent, the exposure to highly frequent droughts in some cases reduced schooling investment but the negative impacts are larger among children embodying less biological human capital. However, asset holdings prior to the disasters, especially intellectual human capital stock in the household, also help maintain schooling investments to the same degree as the stock of human capital accumulated in children prior to the disasters.

> 4The inequality between the affected and non-affected areas must be conceptually separate from the inequality within the affected areas. Natural hazards increase the former, but not necessarily the latter as this depends on mechanisms through which disasters affect the dynamics of human capital formation.

> 5Recently macroeconomic literature shows the relationship between natural hazards and growth performance. In Noy (2008), the illiteracy level increases the negative impact of natural disasters on GDP growth.

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