Growth after the storm: revisiting the economic impact of natural disasters in lower middle-income countries

Despite the increasing frequency and severity of natural disasters, their macroeconomic impact remains debated in the economic literature. Therefore, this study re-examines the macroeconomic costs of natural disasters by assessing their impact on both overall and sector-specific growth across four major disaster types in the short- to medium-term. Drawing on panel data of Lower Middle-Income Countries (LMCs) for the period 1980–2024, this study employed a twofold empirical strategy: the system GMM to estimate the short-term growth effects while controlling for endogeneity, and an event study approach to capture the adjustment process of economic growth following large natural disasters. The findings reveal that natural disasters, regardless of type, tend to exert short-term adverse effects on economic activity, particularly in agricultural sector. However, considerable heterogeneity exists in the medium-term recovery patterns. Due to limited resilience capacity, one-fourth of these countries remain below pre-disaster growth levels, even five years after severe events.