The role of inter-household transfers in coping against post-disaster losses in Madagascar

Disaster Risk Financing and Insurance (DRFI) Workshop Presentation

While the intensity of a natural disaster can be uniformly measured across space, its impact largely depends on the economic conditions of the receiving households and communities. Richer countries can experience greater absolute financial losses but poorer nations often suffer greater relative financial losses (relative to GDP) and significantly more human losses: nearly 90% of disaster-related deaths between 1991-2005 occurred in developing nations. Moreover, setbacks from loss of businesses, assets and livelihoods can have irreversible or very long-term consequences in developing countries. Therefore, how policy makers and communities cope with post-disaster losses is extremely important. In this paper, I evaluate the impacts of cyclones on households in Madagascar and find that inter-households transfers play an important role in coping with postdisaster losses. I first identify rural households as being most affected by weather shocks: cyclones have a negative and significant impact on access to electricity, assets and income, resulting in higher poverty. While urban households are not directly impacted by cyclonic shocks, they do suffer from the indirect impacts of rural shocks through transfer. A rural shock in the previous year leads to reduced expenditure and higher probability of being poor among surrounding urban households. Therefore, while marginally effective in helping rural households cope with cyclones, relief transfers divert resources away from urban households that could have otherwise been used on productive investments.