Foreign Aid in the Aftermath of Large Natural Disasters

• Author: Eduardo Cavallo,Ilan Noy,Oscar Becerra
• DOI: http://doi.org/10.1111/rode.12095
• Published date: 01 August 2014
• Date: 01 August 2014

Foreign Aid in the Aftermath of Large

Natural Disasters

Oscar Becerra, Eduardo Cavallo, and Ilan Noy*

Abstract

This paper examines Official Development Assistance (ODA) in the aftermath of large natural disasters

between 1970 and 2008. Using an event-study approach, the paper finds that while the median increase in

ODA is 18% compared with pre-disaster flows, the typical surge is small in relation to the size of the

affected economies. Moreover, aid surges typically cover only 3% of the total estimated economic damages

caused by the disasters. The main determinants of post-disaster aid surges are found to be the intensity of

the event itself and the recipient country’s characteristics such as the level of development, country size and

the stock of foreign reserves. The paper does not find evidence that political considerations or strategic

behavior on the part of donors determine the size of post-disaster aid surges.

1. Introduction

Human and economic catastrophes associated with natural hazards are obviously not

new, even if new media have changed the way we are aware of them. The January

2010 earthquake in Haiti and the Indian Ocean tsunami of 2004 both generated much

international media attention and unprecedented amounts of international pledges of

aid from private charities, non-governmental organizations (NGOs), governments

and multilateral organizations.1Nonetheless, aid pledges made while media attention

is at its peak may not always be disbursed, could take a long time to arrive, or may

replace previously pledged aid. This raises the following questions: (1) How much

does foreign aid really increase in the aftermath of large disasters? (2) Are aid surges

sizable in relation to the estimated economic damages caused by disasters? (3) What

determines the actual size of the surges?

As far as we could find, no one has ever looked at these questions systematically, in

spite of their obvious importance. One stumbling block is that data sources that

describe emergency international assistance (for example, the United Nations’ Finan-

cial Tracking Service database), do not compare their information with disbursements

prior to the event. Therefore, it may be that much of these resources recorded as

post-disaster aid would have been provided anyway (i.e. without a disaster occur-

ring).2We try to avoid this problem by exploiting the data available through the

Organisation for Economic Co-operation and Development’s (OECD’s) Official

Development Assistance (ODA) dataset which tracks bilateral aid flows from 44

donor countries (32 OECD and 12 non-OECD) to 165 recipient countries since 1960.

Therefore, using an event study approach, we present estimates of the actual surges in

aid flows that affected countries experienced following large natural disasters.

* Noy: School of Economics and Finance, Victoria University of Wellington, PO Box 600, Wellington, New

Zealand. Tel: +64-4-4635737; E-mail: ilan.noy@vuw.ac.nz (also affiliated to University of Hawaii at

Manoa). Becerra: University of British Columbia, Canada. Cavallo: Inter-American Development Bank,

Washington DC, USA.

Review of Development Economics, 18(3), 445–460, 2014

DOI:10.1111/rode.12095

© 2014 John Wiley & Sons Ltd

Our results suggest a mixed picture: while ODA typically increases significantly

relative to pre-disaster flows (i.e. median aid flows increase by 18% after disasters),

post-disaster aid surges are usually small compared with the size of the economies

(i.e. the median increase is 0.14% of GDP), and to the actual direct damages caused

by the events (i.e. the median aid surge covers less than 3% of total estimated

damages). From a normative standpoint, whether these amounts of aid are high or

low for development purposes is debatable because such an assessment would require

a study on aid effectiveness. Instead, the point that we make in this paper is that post-

disaster aid surges are typically small in relation to the overall damages caused by the

disasters.

After calculating the magnitudes of post-disaster aid surges, we extend the event

study approach to examine the determinants of the size of these surges. Not surpris-

ingly, we find that the severity of the event is a determinant of the post-disaster aid

surge. In addition, we find richer countries—conceivably with more resources avail-

able to be re-directed toward reconstruction—receive less foreign aid in the aftermath

of natural disasters. Similarly, countries with larger stocks of foreign exchange

reserves—i.e. more resources available to use for importing capital goods to facilitate

reconstruction—are also given less aid. We also find that media reporting of a disaster

is positively related with larger aid inflows, although media attention is largely corre-

lated to the severity of the event. In addition, we find that initial pre-disaster interna-

tional humanitarian support reduces post-disaster aid inflow surges. Finally, we do not

find evidence that supports the commonly held views that political/cultural affinity

between donors and affected countries and geopolitical interests drive donor behavior

following catastrophic natural events.

Based on these findings, we conclude that while some countries could expect to

receive more aid than others, the evidence suggests that the expectation of large

surges in post-disaster aid flows is not warranted given the current configuration of

global foreign aid. Therefore, we conjecture that countries facing potentially big

losses from natural disasters should not expect foreign aid inflows to cover a large

proportion of the hefty toll that these events usually impose.3This stresses the need

for vulnerable countries to develop complementary sources of financing for post-

disaster relief in order to help to manage risks efficiently.

The structure of the paper is as follows. First, we review the related literature in

order to place our contribution in context. Next, we discuss the data and introduce

some stylized facts on post-disaster aid flows based on an event study approach. We

then explore the determinants of aid surges using a cross-section of events. Finally, we

conclude with discussion and topics for further research.

2. The Literature on Emergency International Assistance

Few papers examine post-natural disasters aid flows. Yang (2008) uses hurricane

intensity data and concludes that official foreign aid increases significantly after disas-

ters; for the developing countries in his sample, 73% of disaster damages are ulti-

mately covered by aid inflows.4David (2011) examines a similar question but with a

different empirical approach. He finds that aid does not seem to increase after cli-

matic disasters, and their increase following geological ones is delayed and very small.

This divergence in results suggests the need to revisit the question using a larger

sample of countries and events and different methods.5

Strömberg (2007) is interested in answering two questions: whether the amount of

aid given after a disaster is influenced by news coverage of the disaster (the answer:

446 Oscar Becerra, Eduardo Cavallo, and Ilan Noy

© 2014 John Wiley & Sons Ltd