Impact of natural disasters on financial development

We estimate the impact of natural disasters on financial development proxied by private credit. We employ a panel fixed effects estimator as our main estimation tool on a country level panel data set of natural disasters and other economic indicators covering 147 countries for the period from 1979 to 2011. We find that companies and households get deeper into debt after a natural disaster. This effect is stronger in poorer countries whilst the effect is weaker in countries where agriculture is more important. Accordingly, it appears that natural disasters significantly increase contemporaneous private per capita credit. This impact is mitigated by higher per capita income and further dampened by higher agriculture dependency in the economy. Our findings are robust to alternative estimators, specifications, and samples.