# 1. INTRODUCTION

Due to its geographical location and its geological and hydro‐meteorological characteristics, Central America is remarkably prone to disasters from adverse natural events. Five of its six countries are ranked in the top 15 countries with the highest risk of mortality and economic loss from three or more natural hazards (World Bank, 2010).

With the highest poverty rates in Latin America, Central America’s population is particularly vulnerable to disasters from adverse natural events. About 42 percent of the region’s population (around 41 million people) is poor or extremely poor (Krozer, 2010). As of 2013, Guatemala, Honduras, and El Salvador have the highest poverty rates in Latin America with 62.4, 59.4 and 31.8 percent of their populations living on less than US$ 4 per day respectively (World Bank, 2015). Disasters from adverse natural events exacerbate Central America’s economic vulnerability, accounting for substantial human and economic losses.

In the last decade alone, between 2005 and 2014, the region had a nominal combined cumulative loss of around US$ 5.8 billion, with more than 3,410 deaths and hundreds of thousands of people displaced.<sup>4</sup> Hydro‐meteorological events are not only the most common of Central America’s natural disasters, but are also the events with the widest range and impact in the region. In 1998, Hurricane Mitch caused about 14,600 deaths, directly affected around 6.7 million people, and caused more than US$ 8.5 billion in damages in Nicaragua, Honduras, Guatemala, and El Salvador. More recently, in October 2011, Tropical Depression 12‐E hit the coasts of El Salvador and Guatemala, causing damage in most of the countries in the region, which totaled almost US$1 billion (CEPAL, 2011).

Recent and growing evidence suggest that disasters have a negative impact on short‐term overall economic growth, increasing poverty and lowering human development indicators (Anttila‐Hughes & Hsiang, 2013; Lucchetti, 2011; Rodriguez‐Oreggia et al., 2012). Other studies have found that disasters may also reduce household consumption substantially, causing significant welfare losses (Dercon, 2005; Thomas et al., 2010). Although there is less available evidence of the long‐term impact of disasters, Hsiang & Jina (2014) present results at the global level which indicate that persistent negative effects of cyclone strikes could last for as long as 20 years after the event. However, by contrast, Raddatz (2009) only found highly concentrated effects of the impacts of droughts and windstorms on national income on the year of the event.<sup>5</sup> In Central America, evidence shows that major disasters affect households negatively, especially in the form of disinvestments in human capital. Analyzing the impact of Hurricane Mitch in Nicaragua, Baez and Santos (2007) find that the probability of child undernourishment in regions hit by Hurricane Mitch increased by 8.7 percent, while child labor force participation increased by 5.6 percent. Carter et al. (2007) looked at the impact of Hurricane Mitch in Honduran households, and found that lowest‐income groups were impacted more severely, and for longer periods. In Guatemala, Bustelo (2011) analyzed the impact of Storm Stan and found that the probability of child labor increased by 7.3 percent in departments hit by the storm. Also in Guatemala, Baez et al. (2015) looked at the consequences of Tropical Storm Agatha (2010) on household welfare, finding that consumption per capita fell by 12.6 percent and poverty increased 5.5 percentage points (an 18 percent increase).

> 4 Calculation of authors based on information from EM‐DAT: The international Disasters Database.

> 5 Dell, Jones and Olken (2014) provide an excellent review on the new climate‐economy literature and summarize results on different socioeconomic outcomes (e.g., health, conflict, economic growth, among others).

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