Permanent scars or temporary setbacks? Natural disasters' effects on LAC economies

Natural disasters have increased in both intensity and frequency across Latin America and the Caribbean (LAC), causing substantial damage to human and physical capital and disrupting economic activity. However, empirical evidence on their impact remains mixed, and focusing solely on GDP growth may obscure their true effects. To address this, the paper examines the impact of natural disasters on long-term (trend) economic growth, extracted using the HP and Hamilton filters, across a panel of LAC economies. The results show that trend GDP growth remains largely unaffected, indicating resilience to disaster shocks. In contrast, real GDP declines by approximately 1.52 percentage points in the short run, with less pronounced effects for major disasters, likely reflecting external aid and financial inflows. These findings suggest that policy should prioritise high-quality, disaster-resilient infrastructure and strengthen preparedness and adaptive capacity to mitigate short-term disruptions while sustaining long-term economic stability.