The Balance of Payments Effects of Natural Disasters

Abstract This article evaluates the effects of large natural disasters on the balance of payments using the local projection (LP) method developed by Jordà (2005) between 2000 and 2020. Our findings reveal that natural disasters lead to a decline in the deficits of the current and capital accounts one year after the event. Additionally, imports and exports of goods and services drop in the two years following a disaster. The impact varies by geographical location, highlighting the significant roles of capital transfers in recovery. Services are particularly affected in island countries.