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The shocks of natural hazards on financial systems

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Abstract

Using panel data consisting of 116 countries, this research investigates the effects of natural hazards on financial systems, including banking system, insurance system, and stock markets. Considering the moderating effects of financial risk, we introduce the interaction between natural hazards and financial risk and also analyze the heterogeneity of income level. Our main conclusions are as follows. (1) Though natural hazards do not significantly influence the banking system directly, they do impact the banking system through financial risk. The moderating effects of natural hazards on the banking system through financial risk are significantly negative. (2) The impacts of natural hazards on the insurance system are dynamic and last over a long period, while the moderating effects of natural hazards through financial risk are significantly negative. (3) The effects of natural hazards on the stock markets and the moderating effects through financial risk are significantly negative. (4) The negative effects of natural hazards on the financial system through financial risk are higher in low-income countries than those in high-income countries. From these results, we offer policy implications such as establishing a complete economic system and lowering the financial risk.

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Notes

  1. ICRG denotes the International Country Risk Guide.

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Acknowledgments

We thank the editor and anonymous referees for their helpful comments and suggestions. Xia Chen is grateful to the Open Fund Project of Center for International Economic and Engineering Management Research (20IEPMZ2). All remaining errors are our own.

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Authors and Affiliations

  1. School of Economics and Management, Changsha University of Science and Technology, Changsha, 410114, Hunan Province, China

    Xia Chen

  2. Shih Chien University, Kaohsiung, Taiwan

    Chun-Ping Chang

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  1. Xia Chen
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  2. Chun-Ping Chang
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Correspondence to Chun-Ping Chang.

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Table 14 The number and impacts of natural disasters in high−income and low−income countries
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14.

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Chen, X., Chang, CP. The shocks of natural hazards on financial systems. Nat Hazards 105, 2327–2359 (2021). https://doi.org/10.1007/s11069-020-04402-0

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