The relationship between natural disaster and public finance: Panel data analysis for G-20 countries

Natural disasters are external risk factors that have socioeconomic and financial consequences and can cause great costs. To cope with these risks, the macroeconomic and financial structures of countries play a critical role. In this context, the creation of public policies that consider disaster risk is a crucial method of mitigating disaster damage. In this study, G20 countries were selected based on their economic development levels. Thus, the impact of public finance elements in G-20 countries, which constitute approximately 85% of the world economy, on the natural disaster damages, which are an important crisis factor, was intended to be measured. In the literature review, no study was found regarding the G-20 country group about the relationship. The study has aimed to measure the relationship between natural disasters and macroeconomic factors and the impact of public finance elements on natural disaster damages in developed and upper middle-income G-20 countries by using the "panel data analysis" method. Therefore, an attempt has been made to fill the gap seen in the empirical studies in the literature within the scope of the relationship between natural disasters and public finance elements. In the analysis, annual data of 19 G-20 countries between 1992 and 2021 were used. The data on the number of people affected by the disaster was provided through EM-DAT (The Emergency Event Database), a commonly used database in the disaster related literature. According to the results of the research, public expenditures and budgeting affect the damage caused by natural disasters. The increase in primary public expenditures statistically reduces disaster damage at a 10% significance level. Interest paid on public debt, which are a type of public expenditure and essentially the cost of public borrowing, increase natural disaster losses. This effect is significant at the 1% level. Increases in the budget balance reduce disaster losses at a significance level of 1%. There was no statistically significant effect of debt on natural disaster losses. As for the inverted U-shaped effect observed in GDP suggests that increases in GDP initially reduce disaster damage, but after a while, as the economies develop, factors such as socioeconomic structure and social welfare will also improve, and thus disaster damages begin to decrease after a peak point. Finally, population and area variables were also examined, but it was observed that these variables did not have a statistically significant effect on disaster damage.