The impact of natural disasters on household income, expenditure, poverty and inequality: evidence from Vietnam

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Abstract

AbstractNatural disasters are expected exacerbate poverty and inequality, but little evidence exists to support the impact at household level. This article examines the effect of natural disasters on household income, expenditure, poverty and inequality using the Vietnam Household Living Standard Survey in 2008. The effects of a natural disaster on household income and expenditure, corrected for fixed effects and potential endogeneity bias, are estimated at 6.9% and 7.1% declines in Vietnamese household per capita income and expenditure, respectively. Natural disasters demonstrably worsen expenditure poverty and inequality in Vietnam, and thus should be considered as a factor in designing poverty alleviation policies.Keywords: hazardsdisastersnatural shockspovertyinequalityVietnamJEL Classification: O12Q54D12 Notes1 Including flood, storm, tropical depression, storm surge, inundation, drought, whirlwinds, flash flood, river bank and coastline erosion, landslides, saline water intrusion, forest fire, hail rain and earthquakes (SRV, Citation2004).2 Rodriguez-Oreggia et al. (Citation2012) are the only study which investigate the effect of natural disasters on poverty in Mexico. However, they examine the effect at municipal level, not at household level as in our research.3 The negative impact of natural disaster on households might be more severe if income redistribution is not appropriately conducted (Peacock et al., Citation1997; Fothergill and Peek, Citation2004; Wisner et al., Citation2004; Krueger and Perri, Citation2010). An existing working paper on Vietnam by Thomas et al. (Citation2010) used earlier cohorts of the VHLSS in 2002, 2004 and 2006 and relied on historical weather data to proxy for extreme disasters. They show that income and expenditure of households in areas of Vietnam with high exposure to natural disaster are much lower than the average, finding that riverine floods and hurricanes cause immediate welfare losses of 23% and 52%, respectively.4 As a rule of thumb, if the test statistic is under 10, the instrument might be weak (Staiger and Stock, Citation1997).5 Derivation of Equation 3 is presented in Appendix 1b.6 Derivation of this estimation is presented in Appendix 1.7 The use of alternative model specifications and size of control variables yield similar results.