Financial inclusion and natural disasters

Collier's dissertation comprises three papers, studying the implications of natural disaster risk for financial inclusion in northern Peru where severe El NiƱo events create catastrophic flooding. The first paper models the disruptions in credit markets created by disaster-related loan losses that constrain financial institutions. It develops a microeconomic mechanism, which partially explains macroeconomic evidence that the economic consequences of disasters are greatest in economies with limited capacity to mobilize investment after a severe event. This paper also tests the value of insurance-like mechanisms to manage disaster risk for financial institutions and shows that these mechanisms not only increase financial resilience but expand access to credit. The second compares insurance products designed for borrowing households versus those designed for the financial institution and concludes that many advantages emerge for insuring at the level of the financial institution when local insurance markets are underdeveloped. The third paper examines the incentives created by the financial environment, especially regulating supervisors and investors, for financial institutions to proactively manage severe disaster risks, concluding that many of the standards by which financial institutions in developing and emerging economies are evaluated are not sensitive to the risks these entities face.

*Recipient of the 2014 Outstanding Dissertation Award from the Agricultural and Applied Economics Association.

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