How do natural and man-made disasters affect international trade? A country-level and industry-level analysis

Abstract

This study examines the influence of disasters on international trade with a gravity equation model. Four types of disasters will be introduced: natural disasters, technological disasters, political risks, and financial crises. Existing literature implies that any type of disasters can either positively or negatively associated with international trade. The effects of disasters are different across the socioeconomic status of trade pairs and across industries as well as across different types of disasters. Results from country-level and industry-level show that natural disasters reduce international trade flows by raising trading and security costs and hardening borders. In contrast to previous findings, these results show that terrorism activities and technological disasters increase the international trade particularly between developed countries. The econometric specification controls unobserved characteristics of trade pairs and endogeneity problems. Managerial implications and future research are discussed.

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