Post-Disaster Spillovers: Evidence from Iranian Provinces

This paper studies the relationship between natural disasters and economic growth in the disaster-prone country of Iran, using a spatial Durbin panel model and covering the time period from 2010 to 2016 and including 29 provinces. The results of the empirical investigation suggest that there is a statistically significant positive relationship between the spatially-lagged occurrence of natural disasters and the change of the first difference of the natural logarithm of GDP per capita. Moreover, the estimations support the findings of previous cross-country studies, namely that we cannot find empirical evidence for a statistically significant direct effect of natural disasters on economic growth in the short term. When including time-lags, we can see a statistically significant positive effect of natural disasters on economic growth after two years. When taking into account the disaster type, which is mainly earthquake and flood in the case of Iran, the results suggest that the positive spillover effects are, rather, driven by earthquakes, and that there is a direct positive effect of floods in the short run. These findings extend existing literature and add new insights that are not just relevant for the case of Iran. The novelty of this study is that established and innovative approaches are used to study natural disasters on the provincial level, instead of the country level, and also take into account spatial spillover effects after disaster events that have been rarely discussed in literature.