Do natural disasters translate into trade disasters?

Abstract

This paper empirically investigates the relationship between natural disasters and agricultural trade for a sample of 187 countries during the period of 1991–2019. To this end, we estimate a theory-grounded gravity equation using Poisson Pseudo Maximum Likelihood (PPML) estimator, controlling for multilateral resistance terms by including (i) both country-pair fixed effects and country-year fixed effects, and (ii) intra-national (domestic) trade flows in addition to international trade flows. Our findings suggest that different types of natural disasters have varied effects on international trade compared to domestic trade in the agriculture sector. Specifically, we observe that droughts, landslides, and insect infestations disrupt trade flows (relative to domestic ones) in most agricultural product categories while floods and storms exert a consistently positive influence on trade flows across product groups. However, the intensity of a disaster plays a crucial role in determining its impact. The positive effects of floods and storms diminish when distinguishing between severe and moderate disasters. For instance, severe floods in developing countries reduce international trade (relative to domestic trade) across nearly all product categories. Similarly, moderate storms in developing countries have a significantly negative impact on the majority of product groups. Natural disasters have a significantly more pronounced effect on international trade (compared to domestic trade) in developing countries than in developed ones, likely due to developed nations' superior mitigation capacities and better storage infrastructure.