|**Shocks**|**Afgha**|**nistan**|**India**|**Lao**|**PDR**|**Mal**|**awi**|**Pe**|**ru**|**Uga**|**nda**|
|---|---|---|---|---|---|---|---|---|---|---|---|
||**U**|**R**|**R**|**U**|**R**|**U**|**R**|**U**|**R**|**U**|**R**|
|One or more|16.4|48.9|61.6|34.4|72.1|40.0|66.8|20.7|34.4|29.7|56.2|
|Two or more|8.7|39.2|23.4|11.9|36.1|12.7|40.4|1.4|1.9|5.6|15.6|
|Natural disasters (drought, flood)|10.6|42.2|57.3|5.6|36.0|10.4|47.2|2.6|21.5|19.9|52.1|
|Price shocks|0.2|3.0|––|4.4|4.9|21.1|42.0|––|––|1.7|3.2|
|Employment shocks|6.4|4.3|––|9.3|3.1|7.7|3.4|6.4|1.5|1.9|0.7|
|Health shocks (death, illness)|6.9|14.0|30.2|23.2|33.8|10.1|18.0|9.1|8.9|11.8|14.9|
|Personal and property crime|1.8|6.6|0.9|5.8|1.9|8.5|8.4|3.2|3.1|6.6|8.7|
|Familyand legal disputes|––|––|1.9|0.0|0.9|1.7|4.3|0.7|0.3|––|––|

**Table 3. Households in developing countries face many shocks. Percentage of respondents reporting type of shock. Source: (World Bank, 2013) based on data from household surveys, various years 2005-2011. U=Urban, R=Rural.**

Importantly, the evidence reviewed in this section suggests households consider their vulnerability to natural risks like floods and droughts when making other risk-related decisions in other domains – such as creating a business or migrating to a city. Because these risks interact, the existence of natural risk can reduce the willingness to take these other risks, which are necessary for development and growth. Empirical evidence on innovation and entrepreneurship suggests for instance that increased risk-taking behaviors are associated with higher economic growth and development:

- The contribution of risk-taking (e.g. through increased innovation/entrepreneurship) to economic growth is well-established in the economic literature and was grounded on the theory of endogenous technical change (Aghion and Howitt, 1992; Grossman and Helpman, 1991; Romer, 1990). The empirical evidence that has followed has largely supported the theory. For innovation, early reviews find a positive link between innovation and output (Cameron, 1998; Nadiri, 1993). Econometric studies (measuring innovation through patents) provide further support and suggest countries hosting a larger number and higher quality patents also experience higher economic growth (Hasan and Tucci, 2010; LeBel, 2008; Şener and Sarıdoğan, 2011; Yang, 2006).

- Regarding entrepreneurship and growth, early studies suggested new business formation promotes employment growth (Birch, 1987; Reynolds, 1999; Wennekers and Thurik, 1999), increased incomes (Carree and Thurik, 2002; Davidsson, 1995; Picot et al., 1998) and greater total factor productivity growth (Aghion et al., 2004; Baumol, 2014). In a review of 57 studies, (van Praag and Versloot, 2007) find that entrepreneurial firms have higher productivity growth and increased innovation. However, employing data on 37 countries, (Wong et al., 2005) suggest that while fast growing new firms lead to increased job creation and higher growth, new firms in general do not.

- Furthermore, risk _aversion_ has been linked to lower investment in physical and human capital (Rosenzweig and Stark, 1989), wage growth (Shaw, 1996), and technology adoption (Liu, 2012) thereby reducing growth and economic development potential. If high natural risks lead individuals to become less risk-taking in terms of innovation, education or entrepreneurship, growth and development will suffer.

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