Speeding up recovery: Evidence from disaster relief financing in Mexico


Published 26.01.22
Photo credit:
D. Membreño (© European Union, 2020)

Saving money today for future natural disasters quickens economic recovery and benefits those hardest hit

Read “Rules for recovery: Impact of indexed disaster funds on shock coping in Mexico” by Alejandro del Valle, Alain de Janvry, and Elisabeth Sadoulet here.

While the economic impacts of natural disasters typically outlast physical damages, governments often fail to plan ahead with the available funding and delivery systems needed to ensure rapid recovery. In this VoxDevTalk, Alejandro del Valle discusses his recent work with co-authors Alain de Janvry and Elisabeth Sadoulet in which they examine the impact of Mexico’s Fonden programme – an indexed disaster fund set aside by the government to provide necessary resources following natural disasters.

To qualify for Fonden, municipalities must meet certain thresholds of disaster-induced damages, which the authors exploit to assess areas that did and did not receive programme support. They find that municipalities receiving disaster funds recover much faster, accelerating economic activity by at least one year. Quantifying this impact, they determine the economic value of the programme to be at least as much as its cost, with the benefits disproportionately benefiting the hardest hit municipalities. Their results show that while saving for a rainy day is often a difficult sell to policymakers, the benefits do outweigh the costs.