Table 1.2: Determinants of Consumption Volatility <!-- Start of picture text --> Dependent Variable: Volatility o Per Capita Consumption"'<br>Exogenous Variables Regre ssions |<br>1 2 3 4 5 6 7 8<br>Constant 1.16 8.37 7.27 7.85 17.26 13.24 13 88 12.22<br>(I 82) (17 33) (16 82) (20.79) (6.60) (4.68) (6.15) (6 35)<br>Production Volatility 1.06 0.66 0.69 0.72<br>(8 44) (4 76) (4.94) (6.46)<br>Financial Depth/Production Volatility' -0.17 -0 07 -0 09<br>1(-5 22) (-1.65) (-2.89)<br>Insurance Depth/Production Volatility 4 ' -1.42 0.61<br>(-5.52) (1. 9)<br>Per Capita GDP -0.0002 -0.0001 -0.0001<br>(-7.37) (-1.76) (-4.67)<br>Log (Population) -0.71 -0.56 -0.62 -0.54<br>(-4.32) (-3.35) *(4.92) (-4.81)<br>Numberofcountries 101 90 76 100 102 66 1 100<br>R-squared 0.42 0 24 0.29 036 0.16 0 61 0.53 0.62<br>Adjusted R-squared 0.41 0.23 0.28 0.35 0.15 0.58 0.51 0 61<br>DW 1.75 2.13 1.59 2.10 1 38 207 231 2.07<br>Standard Deviation of Consumption Per Capita.<br>" Standard Deviation of Production Per Capita.<br><!-- End of picture text -->

" Ratio of M2/GDP to production volatility.

t Ratio of misurance preniumstGDP to production volatility. **3** Logarithm of 1997 population Note t-statistics given in parentheses. Sourem SIMA database of the World Bank.

# **_B._** _Effects of_ **_Natural Disasters on Macroeconomic Variables_**

# **_B.l. A Theoretical Framework_**<sup>**_5_**</sup>

This section develops a theoretical framework to assess the effects of natural disasters on individual and household welfare.

# **_B.1. 1._** _Effects of_ **_Natural Disasters on Household Welfare_**

The impact of natural disasters on household welfare may be classified into -three- categories: physical integrity, assets and income. Individual integrity is vulnerable to the consequences of natural disasters, inasmuch as immediate fatalities, debilitating injuries and health epidemics compromise the quality of life. The loss of lives permanently deprives households of productive members, orphans minor dependents and leaves a legacy of psychological and financial burdens. Additionally, incapacitating injuries limit one's ability to carry out full-scale productive functions and can mean prolonged hospitalization or rehabilitation and a significant decrease in a household's earning power. In the aftermath of geological or weather-related hazards, ruptured or overflowing sewage systems can disrupt or contaminate water supply to large areas, as well as increase the risk of water-borne diseases. Subsiding floods leave in their wake stagnant pools that quickly become a breeding ground for malaria-transmitting mosquitoes. In sum, overcrowded living quarters, inadequate disposal of waste and the environmental impact of disasters combine to incubate bacteria, viruses and other parasites that threaten public health and economic welfare.

Disasters lead to the loss of tools, dwellings and other income-generating fixed or liquid assets. Houses are particularly vulnerable to the damaging impact of earthquakes, high winds, volcanic eruptions, landslides and floods. Shops, factories and markets are not immune to the

> 5 This Section draws on Celine Charveriat, _Natural Disasters in Latin America and the Caribbean: An Overview of Risk._ October 2000. Inter-American Development Bank. Working Paper #434.

_15_