floods and droughts have a higher risk of falling into poverty or being trapped in poverty. Both aspects are discussed in more detail below.

Localization choices across regions and cities are in the first place driven by socioeconomic considerations (housing prices, proximity to jobs, amenities), much more than by natural hazards (Hallegatte, 2012). In particular, households may be willing to accept high levels of risk to get access to opportunities. In a case study in Mumbai for instance, households in flood areas report that they are well aware of the flood risks, but accept them due to the opportunities offered by the area (access to jobs, schools, and health care facilities in particular (Patankar, 2015)). Compounding this incentive for people to reside in flood zones and close to opportunities is the reality that transport is often unreliable, unsafe, or expensive (Dudwick et al., 2011; Gentilini, 2015). In some rural areas, proximity to water offers cheaper transport opportunities and regular floods may increase agricultural productivity (Loayza et al., 2012). People may also settle in risky areas to benefit from opportunities with industries driven by exports in coastal areas (Fleisher and Chen, 1997). These opportunities attract all people – rich and poor – to places that are exposed to natural hazards.

However, at the city or neighborhood level, where the opportunity factors are broadly similar, but risk of floods may be different from neighborhood to neighborhood, poor people might be more exposed due to the effect of lower housing prices in flood zones (Bin and Landry, 2013; Husby et al., 2014). A review of empirical studies for mostly developed countries finds that the range of prices between flood‐exposed and non‐flood‐exposed houses varies widely; a meta‐analysis of 37 studies mostly in rich countries finds a spread of −7 percent to +1 percent (Beltran et al., 2015). Poorer people having less financial resources to spend on housing and in general a lower willingness and ability to pay for safety, are more likely to live in at‐risk areas. This factor is more likely to exist for floods than for droughts, due to the small‐scale variability in flood hazard (for example with floods, impacts can be very different in areas 100 meters apart). Also, it is likely that frequent floods are better included in land and housing prices than flood risks linked to exceptional events (Hallstrom and Smith, 2005).

Alternatively, causality may also go from flood and drought exposure to poverty. Evidence shows that floods affect household livelihood and prospects and increase local poverty levels through the loss of income and assets (see for instance Rodriguez‐Oreggia et al., 2013 for an analysis in Mexico). The risk associated with exposure to droughts has been found to increase poverty ex‐post (Dercon, 2004; Carter et al., 2007). Further, the impact of disaster risk on poverty occurs through both the visible ex‐ post channel (the losses when a disaster occurs), as well as the less obvious but as important ex‐ante channel: households exposed to weather risk have been shown to reduce investment in productive assets and to select low‐risk, low‐return activities (Cole et al., 2013; Elbers et al., 2007). This link from natural hazard exposure to poverty may create a feedback loop, in which poor households have no choice but to settle in at‐risk zones and as a result face increased challenges to escaping poverty.

This review illustrates the complexity of interactions between natural hazards and poverty. Diversity in this relationship amongst countries is to be expected and therefore evidence from a limited amount of case studies or from cross‐country analyses (e.g., Kim, 2012) is not enough to conclude an unequivocal relationship between the existence of poverty and flood and drought hazard. This study therefore aims for a geographically wider analysis of the relationship between natural hazards and poverty than performed before.

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