Joint work with Ken-Ichi Akao.
This paper develops a general framework that can be used to analyze the long-term relationship between disasters and economic growth. We first establish the basic existence and equivalence results. We then apply the framework to a two-sector endogenous growth model to consider the influence of disasters on the long-term equilibrium and the transition phase. The result shows that while actual strikes of disasters may lower the average growth rate of the affected countries, there exist various channels through which the risk of disasters and long-term economic per- formance are positively correlated. This finding reconciles the apparently contradictory evidence in recent empirical studies. Our result also suggests that care should be taken with the interpretation of disaster-driven economic growth because many of the channels identified are accompanied by a welfare decline.