Publication: Higher Losses and Slower Development in the Absence of Disaster Risk Management Investments
Loading...
Published
2016-04
ISSN
Date
2016-05-04
Author(s)
Editor(s)
Abstract
Global economic losses from natural disasters continue to increase. Yet, investments in disaster risk management are not universal, as they are traditionally seen as in competition with other development and economic priorities. The multitude of benefits from disaster risk management investments are not traditionally accounted for in cost-benefit analyses. This paper contributes to this discussion by highlighting the multiple benefits from disaster risk management investments, focusing on the avoided losses when a disaster occurs, but also on the impacts on economic development even before a disaster strikes. The paper's main message is that disaster risk management investments can provide two dividends: reduced losses when a disaster strikes, and a shift of investment strategies and perhaps even an increase in investment value that would benefit the economy even before a disaster strikes. Providing evidence to policy makers and investors about the existence of both types of dividends can provide a narrative reconciling short-term and long-term objectives, thereby improving the acceptability and feasibility of disaster risk management investments.
Link to Data Set
Citation
“Bangalore, Mook; Hallegatte, Stephane; Jouanjean, Marie-Agnes. 2016. Higher Losses and Slower Development in the Absence of Disaster Risk Management Investments. Policy Research Working Paper;No. 7632. © World Bank. http://hdl.handle.net/10986/24205 License: CC BY 3.0 IGO.”
Digital Object Identifier
Associated URLs
Associated content
Other publications in this report series
Publication The Economic Value of Weather Forecasts: A Quantitative Systematic Literature Review(Washington, DC: World Bank, 2025-09-10)This study systematically reviews the literature that quantifies the economic benefits of weather observations and forecasts in four weather-dependent economic sectors: agriculture, energy, transport, and disaster-risk management. The review covers 175 peer-reviewed journal articles and 15 policy reports. Findings show that the literature is concentrated in high-income countries and most studies use theoretical models, followed by observational and then experimental research designs. Forecast horizons studied, meteorological variables and services, and monetization techniques vary markedly by sector. Estimated benefits even within specific subsectors span several orders of magnitude and broad uncertainty ranges. An econometric meta-analysis suggests that theoretical studies and studies in richer countries tend to report significantly larger values. Barriers that hinder value realization are identified on both the provider and user sides, with inadequate relevance, weak dissemination, and limited ability to act recurring across sectors. Policy reports rely heavily on back-of-the-envelope or recursive benefit-transfer estimates, rather than on the methods and results of the peer-reviewed literature, revealing a science-to-policy gap. These findings suggest substantial socioeconomic potential of hydrometeorological services around the world, but also knowledge gaps that require more valuation studies focusing on low- and middle-income countries, addressing provider- and user-side barriers and employing rigorous empirical valuation methods to complement and validate theoretical models.Publication The Macroeconomic Implications of Climate Change Impacts and Adaptation Options(Washington, DC: World Bank, 2025-05-29)Estimating the macroeconomic implications of climate change impacts and adaptation options is a topic of intense research. This paper presents a framework in the World Bank's macrostructural model to assess climate-related damages. This approach has been used in many Country Climate and Development Reports, a World Bank diagnostic that identifies priorities to ensure continued development in spite of climate change and climate policy objectives. The methodology captures a set of impact channels through which climate change affects the economy by (1) connecting a set of biophysical models to the macroeconomic model and (2) exploring a set of development and climate scenarios. The paper summarizes the results for five countries, highlighting the sources and magnitudes of their vulnerability --- with estimated gross domestic product losses in 2050 exceeding 10 percent of gross domestic product in some countries and scenarios, although only a small set of impact channels is included. The paper also presents estimates of the macroeconomic gains from sector-level adaptation interventions, considering their upfront costs and avoided climate impacts and finding significant net gross domestic product gains from adaptation opportunities identified in the Country Climate and Development Reports. Finally, the paper discusses the limits of current modeling approaches, and their complementarity with empirical approaches based on historical data series. The integrated modeling approach proposed in this paper can inform policymakers as they make proactive decisions on climate change adaptation and resilience.Publication Rigging the Scores: Corruption through Scoring Rule Manipulation in Public Procurement Auctions(Washington, DC: World Bank, 2025-12-02)Public procurement is highly susceptible to corruption, especially in developing countries. Although open auctions are widely adopted to curb it, this paper finds that corruption remains prevalent even within this procurement format. Procurement officers can collaborate with firms to manipulate scoring rules, ensuring predetermined winners, while corrupt firms submit noncompetitive bids to meet minimum bidder requirements. Using extensive data from Chinese public procurement auctions, the paper introduces model-driven statistical tools to detect such corruption, identifying a corruption rate of 65 percent. A procurement expert audit survey confirms the tools’ reliability, with a 91 percent probability that experts recognize suspicious scoring rules when flagged. Firm-level analysis reveals that local, state-owned, and less productive firms are favored in corrupt auctions. Lastly, the paper explores policy implications. Analysis of the national anti-corruption campaign since 2012 suggests that general investigations may be insufficient to address deeply ingrained corrupt practices. Using counterfactuals based on an estimated structural model, the paper shows that implementing anonymous call-for-tender evaluations could improve social welfare by 10 percent by eliminating suspicious rules and encouraging broader participation.Publication Labor Demand in the Age of Generative AI: Early Evidence from the U.S. Job Posting Data(Washington, DC: World Bank, 2025-11-18)This paper examines the causal impact of generative artificial intelligence on U.S. labor demand using online job posting data. Exploiting ChatGPT’s release in November 2022 as an exogenous shock, the paper applies difference-in-differences and event study designs to estimate the job displacement effects of generative artificial intelligence. The identification strategy compares labor demand for occupations with high versus low artificial intelligence substitution vulnerability following ChatGPT’s launch, conditioning on similar generative artificial intelligence exposure levels to isolate substitution effects from complementary uses. The analysis uses 285 million job postings collected by Lightcast from the first quarter of 2018 to the second quarter of 2025Q2. The findings show that the number of postings for occupations with above-median artificial intelligence substitution scores fell by an average of 12 percent relative to those with below-median scores. The effect increased from 6 percent in the first year after the launch to 18 percent by the third year. Losses were particularly acute for entry-level positions that require neither advanced degrees (18 percent) nor extensive experience (20 percent), as well as those in administrative support (40 percent) and professional services (30 percent). Although generative artificial intelligence generates new occupations and enhances productivity, which may increase labor demand, early evidence suggests that some occupations may be less likely to be complemented by generative artificial intelligence than others.Publication Investment Policy Reforms and Foreign Direct Investment Inflows(Washington, DC: World Bank, 2025-12-01)Foreign direct investment has the potential to introduce much-needed capital and expertise in emerging and developing economies. To attract foreign direct investment, many countries have eased restrictions on foreign ownership in various sectors, reformed their institutions, and set up investment promotion agencies. Until the mid-2010s, Ethiopia remained one of the few countries that resisted this trend, with several stringent restrictions in place on foreign direct investment entry and operations in the country. This study employs a synthetic control method to examine patterns in foreign capital inflows following a series of investment policy reforms that were substantively introduced in the mid-2010s (circa 2015). The study offers evidence that investment policy reforms contributed to a significant foreign direct investment inflow in Ethiopia, compared to what would have occurred in the absence of these policies. An alternative strategy that conservatively specifies the donor country pool using an AI-assisted deep search technique changes the donor pool weighting matrix of the synthetic control method, but the estimated policy effects largely remain robust to this specification. The findings highlight the importance of targeted reforms in promoting foreign direct investment inflow in developing countries.
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication Strong, Safe, and Resilient : A Strategic Policy Guide for Disaster Risk Management in East Asia and the Pacific(Washington, DC: World Bank, 2013-03-06)Experiencing both recurrent small-scale events as well as devastating large-scale catastrophes, no other region in the world is affected by disasters as is East Asia and the Pacific. In the last decade, Ho Chi Minh City, Jakarta, Manila, and many other cities have been repeatedly hit by floods. In the last five years, Asia has experienced a large share of wide-scale natural catastrophes, including earthquakes in the Tohoku region in 2011, Padang in 2009, and Wenchuan in 2008; typhoons in 2009 in the Lao People's Democratic Republic, the Philippines, and Vietnam; a cyclone in Myanmar in 2008; and large-scale floods in 2011 in Cambodia, Thailand, and the Philippines. The year 2011 was the costliest year on record for natural disasters with cascading effects (Japan) and trans-boundary consequences (Thailand), adding up to US$380 billion in economic losses, almost doubling the 2005 record of US$262 billion. In the first nine months in 2011, East Asia sustained about 80 percent of all disaster losses worldwide. The executive summary provides a brief overview of the key issues, strategic goals, and recommendations for DRM in East Asia and the Pacific. Chapter one gives an overview of the key trends related to disaster impacts in the region. Chapter two focuses on cross-sectoral issues of institutional arrangements for DRM and outreach to communities. Chapter's three to seven follow the core areas of DRM: risk identification, risk reduction, emergency preparedness, financial protection, and sustainable recovery and reconstruction. The appendixes include additional information related to specific sections of the report, a glossary of key terminology, and a summary of the main activities of the World Bank East Asia and the Pacific disaster risk management team.Publication Jamaica : Toward a Strategy for Financial Weather Risk Management in Agriculture(Washington, DC, 2009-11)This report forms part of the technical assistance provided by the World Bank under the Non-lending Technical Assistance Program for the Caribbean 'market-based agriculture risk management in the Caribbean.' The program is largely financed by the European Union All Agriculture Commodities Program (AACP) Initiative and contributions from the International Fund for Agriculture Development (IFAD) and the World Bank. This document provides technical input for designing a national strategy for addressing the financial weather risks facing the agricultural sector of Jamaica. As such, it identifies the various options from current available financial risk transfer instruments for addressing crop weather risks for small farmers (livestock risks are not directly addressed in this report) and identifies the public investments needed for supporting market development of the agricultural insurance market. The report is structured in five sections to facilitate its presentation. The first two sections present a snapshot of the Jamaican economy and agricultural sector, and the current situation of agricultural insurance; third section addresses a set of key issues for designing a government strategy for agricultural financial weather risk management; fourth section contains the elements of public policy and investments to support market development for agricultural insurance, and various illustrations of how to structure financial weather risk management instruments for the sector. The report concludes with a short section containing final remarks and recommendations.Publication Agricultural Risk Management in the Caribbean : Lessons and Experiences, 2009-2012(Washington, DC, 2012-10)The purpose of this report is to summarize the main results and lessons learned during the implementation of the World Bank technical assistance (TA), which are valuable to the ongoing discussion on agricultural risk management in the region. The report is organized as follows. Section two summarizes the program risk management strategies, including initial objectives and final outcomes. In particular, it describes how these objectives change in order to respond to the countries' particular demands. Section three presents the methodology and basic principles applied in the four stages of the program implementation. Six country cases are summarized in section four with a complete description of final outputs and recommendations. Finally, section five presents the main conclusions and lessons learned.Publication Disaster Risk Financing and Insurance in Sub-Saharan Africa(Washington, DC, 2012-11)This policy note is a preliminary effort to present a body of knowledge on the state of disaster risk financing and insurance in Sub-Saharan Africa. It aims to contribute to a strengthened understanding and collective knowledge within Sub-Saharan Africa on disaster risk financing and insurance, and to encourage open dialogue between stakeholders on how strategies can best be developed to increase financial resilience against natural disasters. The report is targeted at policy-makers and actors in the international community with an interest in this agenda. In the context of this report, disaster risk financing and insurance refers to instruments and mechanisms at the macro, market and micro level that provide financial resources to assist with response and recovery efforts in the aftermath of a disaster. This report focuses on natural disasters, which we can describe as unforeseen events driven by natural phenomena that cause serious disruption of the functioning of a community or a society causing widespread human, material, economic and/or environmental losses which overwhelm the capacity of the affected community or society. This report discusses rapid onset disasters such as cyclones, earthquakes and floods but also slow onset events such as drought. Sub-Saharan African countries are highly exposed to a wide range of adverse natural events, with hydro-meteorological hazards impacting the largest number of people. Disaster risk financing and insurance (DRFI) has been highlighted by the African union, regional economic communities and individual countries as an area for regional financial cooperation.Publication Assessing the Financial Vulnerability to Climate-Related Natural Hazards(2010-03-01)National governments are key actors in managing the impacts of extreme weather events, yet many highly exposed developing countries -- faced with exhausted tax bases, high levels of indebtedness, and limited donor assistance -- have been unable to raise sufficient and timely capital to replace or repair damaged infrastructure and restore livelihoods after major disasters. Such financial vulnerability hampers development and exacerbates poverty. Based on the record of the past 30 years, this paper finds many developing countries, in particular small island states, to be highly financially vulnerable, and experiencing a resource gap (net disaster losses exceed all available financing sources) for events that occur with a probability of 2 percent or higher. This has three main implications. First, efforts to reduce risk need to be ramped-up to lessen the serious human and financial burdens. Second, contrary to the well-known Arrow-Lind theorem, there is a case for country risk aversion implying that disaster risks faced by some governments cannot be absorbed without major difficulty. Risk aversion entails the ex ante financing of losses and relief expenditure through calamity funds, regional insurance pools, or contingent credit arrangements. Third, financially vulnerable (and generally poor) countries are unlikely to be able to implement pre-disaster risk financing instruments themselves, and thus require technical and financial assistance from the donor community. The cost estimates of financial vulnerability -- based on today's climate -- inform the design of "climate insurance funds" to absorb high levels of sovereign risk and are found to be in the lower billions of dollars annually, which represents a baseline for the incremental costs arising from future climate change.
Users also downloaded
Showing related downloaded files
Publication Biodiversity, Climate Change, and Adaptation : Nature-based Solutions from the World Bank Portfolio(World Bank, Washington, DC, 2008)Climate change is a serious environmental challenge that could undermine the drive for sustainable development. Since the industrial revolution, the mean surface temperature of earth has increased an average of 1degree celsius per century due to the accumulation of greenhouse gases in the atmosphere. Furthermore, most of this change has occurred in the past 30 to 40 years, and the rate of increase is accelerating, with significant impacts both at a global scale and at local and regional levels. While it remains important to reduce greenhouse gas emissions and reverse climate change in the long run, many of the impacts of climate change are already in evidence. As a result, governments, communities, and civil society are increasingly concerned with anticipating the future effects of climate change while searching for strategies to mitigate, and adapt to, it's current effects.Publication The Macroeconomic Implications of a Transition to Zero Net Emissions(World Bank, Washington, DC, 2023-03)Analyzing the macroeconomic consequences of a transition to a net-zero economy creates specific modeling challenges, including those related to the non-marginal nature of the required transformation, the role of technologies, and the replacement of fossil fuel-based assets with greener ones. To address these challenges, this paper proposes a hybrid modeling approach that starts from a set of sectoral techno-economic scenarios to construct an illustrative resilient and net-zero decarbonization trajectory. It then assesses the macroeconomic implications by linking sectoral dynamics to two macroeconomic frameworks: a multisector general equilibrium framework and an aggregate macrostructural model. This approach combines the advantages of multiple tools and captures the various dimensions of the transition, including the need to tackle simultaneously multiple market failures beyond the carbon externality. The paper illustrates this methodology with Türkiye’s objective to reach net zero emissions by 2053. The multisector general equilibrium framework suggests that the transition could contribute positively to Türkiye’s economic growth despite the large investment needs, especially when indirect mitigation benefits are taken into account and if labor market frictions can be reduced. Improved energy efficiency in the transportation and building sectors drives the growth benefits in the short and medium terms. The growth benefits depend on how transition investments are financed: if they crowd out other productive investments, the benefits are significantly reduced and can even become slightly negative in the long term. The macrostructural model focuses on implications for public debt and the current account, using two extreme scenarios in which additional investments are triggered by higher productivity or a set of budget-neutral incentives (taxes and subsidies). The model concludes that the transition would have moderate impacts on the current account and public debt. With budget-neutral incentives, there is a small increase in gross domestic product (GDP) growth, the debt-to-GDP ratio increases by 1 to 3 percent, and the current account remains unchanged thanks to the reduction in fuel imports.Publication The Indirect Cost of Natural Disasters and an Economic Definition of Macroeconomic Resilience(World Bank, Washington, DC, 2015-07)The welfare impact of a disaster does not depend only on the physical characteristics of the event or its direct impacts in terms of lost lives and assets. Depending on the ability of the economy to cope, recover, and reconstruct, the reconstruction will be more or less difficult, and the welfare effects smaller or larger. This ability, which can be referred to as the macroeconomic resilience of the economy to natural disasters, is an important parameter to estimate the overall vulnerability of a population. Here, resilience is decomposed into two components: instantaneous resilience, which is the ability to limit the magnitude of the immediate loss of income for a given amount of capital losses, and dynamic resilience, which is the ability to reconstruct and recover quickly. The paper proposes a rule of thumb to estimate macroeconomic resilience, based on the interest rate (a higher interest rate decreases resilience and increases welfare losses), the reconstruction duration (a longer reconstruction duration increases welfare losses), and a “ripple-effect” factor that increases or decreases immediate losses (negative if enough idle resources are available to cope; positive if cross-sector and supply-chain issues impair the production of non-affected capital). An optimal risk management strategy is very likely to include measures to reduce direct impacts (disaster risk reduction actions) and measures to reduce indirect impacts (resilience building actions).Publication Convenient Solutions to an Inconvenient Truth : Ecosystem-based Approaches to Climate Change(World Bank, 2010)Global warming and changes in climate have already had observed impacts on natural ecosystems and species. Natural systems such as wetlands, mangroves, coral reefs, cloud forests, and Arctic and high-latitude ecosystems are especially vulnerable to climate-induced disturbances. However, enhanced protection and management of biological resources and habitats can mitigate the impacts and contribute to solutions as nations and communities strive to adapt to climate change. Biodiversity is the foundation and mainstay of agriculture, forests, and fisheries. Biological resources provide the raw materials for livelihoods, agriculture, medicines, trade, tourism, and industry. Forests, grasslands, freshwater, and marine and other natural ecosystems provide a range of services often not recognized in national economic accounts but vital to human welfare: regulation of water flows and water quality, flood control, pollination, decontamination, carbon sequestration, soil conservation, and nutrient and hydrological cycling. Current efforts to address climate change focus mainly on reducing greenhouse gas (GHG) emissions by adopting cleaner energy strategies and on reducing the vulnerability of communities at risk by improving infrastructure to meet new energy and water needs. This book offers a compelling argument for including ecosystem-based approaches to mitigation and adaptation as an essential pillar in national strategies to address climate change. Such ecosystem-based strategies can offer cost-effective, proven, and sustainable solutions that contribute to, and complement, other national and regional adaptation strategies.Publication Digital Africa(Washington, DC: World Bank, 2023-03-13)All African countries need better and more jobs for their growing populations. "Digital Africa: Technological Transformation for Jobs" shows that broader use of productivity-enhancing, digital technologies by enterprises and households is imperative to generate such jobs, including for lower-skilled people. At the same time, it can support not only countries’ short-term objective of postpandemic economic recovery but also their vision of economic transformation with more inclusive growth. These outcomes are not automatic, however. Mobile internet availability has increased throughout the continent in recent years, but Africa’s uptake gap is the highest in the world. Areas with at least 3G mobile internet service now cover 84 percent of Africa’s population, but only 22 percent uses such services. And the average African business lags in the use of smartphones and computers as well as more sophisticated digital technologies that catalyze further productivity gains. Two issues explain the usage gap: affordability of these new technologies and willingness to use them. For the 40 percent of Africans below the extreme poverty line, mobile data plans alone would cost one-third of their incomes—in addition to the price of access devices, apps, and electricity. Data plans for small- and medium-size businesses are also more expensive than in other regions. Moreover, shortcomings in the quality of internet services—and in the supply of attractive, skills-appropriate apps that promote entrepreneurship and raise earnings—dampen people’s willingness to use them. For those countries already using these technologies, the development payoffs are significant. New empirical studies for this report add to the rapidly growing evidence that mobile internet availability directly raises enterprise productivity, increases jobs, and reduces poverty throughout Africa. To realize these and other benefits more widely, Africa’s countries must implement complementary and mutually reinforcing policies to strengthen both consumers’ ability to pay and willingness to use digital technologies. These interventions must prioritize productive use to generate large numbers of inclusive jobs in a region poised to benefit from a massive, youthful workforce—one projected to become the world’s largest by the end of this century.