Edem Egnikpo

2026-10

A Stochastic Growth Model of a Poorly Developed Country with Natural Disasters

Gilles Dufrénot, Edem Egnikpo

Abstract This paper proposes a dynamic model in which natural disasters affect the accumulation of private wealth, public spending, and output in an economy that is intended to capture salient features of developing countries. The central object of the analysis is the stationary distribution of key macroeconomic variables that emerges in the presence of recurrent, stochastic disasters. Within this framework, we derive analytic characterizations of the stationary distributions of private wealth, government spending, and GDP, and study how their shapes and tails depend on both disaster risk and institutional parameters. Natural disasters affect the economy via two channels. First, the effects on production are transmitted through a demand channel by altering the consumption-savings trade-off of households and thus the proportion of capital that can be invested in capital accumulation. Second, natural disaster shocks also activate a supply channel: they destroy capital and alter the way in which public spending influences total factor productivity. The stationary distributions of capital stock and public expenditure exhibit unusual characteristics such as Pareto laws and upper Gamma distributions. Our stylized model describes key mechanisms in developing countries and allows us to investigate the factors that enhance economic resilience to shocks, as well as those that may render their effects persistent.

Keywords Stochastic growth, Public spending, Developing countries, Natural disasters

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2024-37

Impact of natural disasters: average effects hide heterogeneity across growth regimes and time horizons *

Gilles Dufrénot, Edem Egnikpo

Abstract We propose a new approach to measure the sensitivity of economic growth to natural disasters in developing countries at different time horizons (short, medium, and long term). We allow for heterogeneous effects across growth regimes and intensities of disaster shocks using quantile-on-quantile regressions and wavelet decomposition.Our findings yield several insights. First, small disaster shocks boost GDP per capita growth in low-growth countries across all horizons. By contrast, in high-growth countries, such shocks cause sharp short-term growth declines, followed by a rapid recovery in the medium term, albeit without regaining the pre-disaster growth trajectory in the long term. Second, severe disaster shocks lead to long-term growth losses in highgrowth countries, despite their initial resilience. Conversely, low-growth countries experience immediate and persistent growth declines that worsen over time. Third, the role of macroeconomic variables in mitigating or amplifying growth losses varies depending on the growth regime, disaster severity, and time horizon.

Keywords Natural disasters, Growth, Developing countries, Quantile-on-quantile

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