Natural Disasters and the Dynamics of Intangible Assets

Empirical evidence suggests that the higher-order effects of natural disasters, which affect intangible assets, may be even more important than the material inter-industry effects. However, most existing general equilibrium models ignore higher order effects concerning human capital. Moreover, it is recognized that natural resource dependence increases vulnerability to natural disasters. Recent studies have indeed shown the potential importance of subsistence traps caused by asset losses in low-income economies from a partial equilibrium perspective. This paper presents an analysis that allows for endogenous investments in real assets (physical capital) as well as in human capital, explicitly considering the potential for subsistence traps arising from minimum consumption and minimum natural resource irreversibility thresholds. The general equilibrium ramifications of subsistence traps are developed. The main issue is that the economy may be subject to hysteresis: A temporary shock such as a natural disaster may leave permanent consequences for the economy. An obvious permanent effect of a one-time disaster shock is that physical man-made and natural assets owned especially by poor households may end up completely wiped out. The disaster may not be the direct cause; it may be that poor households would have to obtain minimum subsistence consumption out of depleted assets. However, not all permanent effects of a one-time shock are negative. Under certain conditions, the destruction of man-made physical and natural capital may have general equilibrium effects that increase the incentives to invest in human capital and may even propel a formerly stagnating economy into a virtuous path of continuing growth.

Bibliographic Details

Main Author:	López, Ramón
Language:	English
Published:	2009-03-01
Subjects:	ACCESS TO MARKETS, ACCOUNTING, AGRICULTURE, ASSET RATIO, ASSET RECONSTRUCTION, ASSETS, BIASES, BONDS, BORROWING, BUDGET CONSTRAINT, BUDGET CONSTRAINTS, CAPITA INCOME GROWTH, CAPITAL ACCUMULATION, CAPITAL ASSETS, CAPITAL FLOWS, CAPITAL GROWTH, CAPITAL GROWTH RATE, CAPITAL INVESTMENT, CAPITAL INVESTMENTS, CAPITAL LOSSES, CAPITAL MARKET, CAPITAL MARKET LIBERALIZATION, CAPITAL MARKETS, CAPITAL STOCK, CAPITAL STOCKS, COMMODITY PRICES, CONSTANT RATE, CONSTANT RETURNS, CONSTANT RETURNS TO SCALE, CONSUMPTION EXPENDITURE, CONSUMPTION EXPENDITURES, CONSUMPTION LEVELS, CREDIT RATIONING, DAMAGES, DERIVATIVES, DEVELOPING COUNTRIES, DISCOUNT RATE, ECONOMIC GROWTH, ECONOMIC INEFFICIENCY, ECONOMICS, ELASTICITY, ELASTICITY OF SUBSTITUTION, EMPLOYMENT, ENDOGENOUS VARIABLE, ENDOWMENTS, ENROLLMENT, ENVIRONMENTAL PROTECTION, EQUALITY, EQUILIBRIUM, EQUILIBRIUM LEVEL, EQUIPMENT, EQUIPMENTS, EXCESS DEMAND, EXPECTED PRESENT VALUE, EXPENDITURE, FACTORS OF PRODUCTION, FINANCIAL ASSETS, FINANCIAL INSTRUMENTS, FINANCIAL INTERMEDIARIES, FINANCIAL RESOURCES, FINANCIAL SERVICES, GDP, GENERAL EQUILIBRIUM, GENERAL EQUILIBRIUM MODELS, GOVERNMENT BUDGETS, GOVERNMENT EXPENDITURE, GOVERNMENT EXPENDITURES, GOVERNMENT REVENUES, GOVERNMENT SPENDING, GOVERNMENT SUBSIDIES, GROWTH ACCOUNTING, GROWTH MODELS, GROWTH PROCESS, GROWTH RATE, GROWTH RATES, GROWTH THEORY, HIGH WAGES, HOUSEHOLD INCOME, HOUSEHOLD INCOMES, HOUSEHOLD INVESTMENT, HOUSEHOLD SAVINGS, HOUSEHOLDS, HUMAN CAPITAL, HUMAN CAPITALS, INCOME, INCOME GROWTH, INEQUALITY, INPUT PRICES, INTANGIBLE, INTANGIBLE ASSET, INTANGIBLE ASSETS, INTERMEDIATE GOODS, INTERMEDIATE INPUT, INTERNATIONAL BANK, INTERNATIONAL TRADE, INVESTING, INVESTMENT DECISIONS, INVESTMENT RATE, LABOR DEMAND, LABOR EFFICIENCY, LABOR FORCE, LABOR MARKET, LABOR MARKETS, LABOR MIGRATION, LABOR SUPPLY, LEVEL OF CAPITAL, LEVEL OF OUTPUT, LOCAL INFRASTRUCTURE, LOW ELASTICITY OF SUBSTITUTION, MANPOWER, MARGINAL COST, MARGINAL RATE OF RETURN, MARGINAL UTILITY, MARGINAL VALUE, MARKET CONDITION, MARKET EQUILIBRIUM, MARKET FAILURE, MARKET FAILURES, MARKET IMPERFECTIONS, MARKET WAGE, MIDDLE INCOME COUNTRIES, NATURAL CAPITAL, NATURAL CAPITALS, NATURAL DISASTER, NATURAL DISASTERS, NATURAL RESOURCES, NEGATIVITY CONSTRAINT, NET INVESTMENT, OPEN ECONOMIES, OPEN ECONOMY, OPPORTUNITY COST, OPTIMAL INVESTMENT, OPTIMIZATION, OUTPUTS, PER CAPITA INCOME, PHYSICAL ASSETS, PHYSICAL CAPITAL, POTENTIAL INVESTORS, PRIVATE ENTERPRISES, PRODUCTION FUNCTION, PRODUCTION FUNCTIONS, PRODUCTIVE ASSETS, PRODUCTIVE CAPITAL, PROFITABILITY, PROPERTY RIGHTS, PUBLIC POLICY, PUBLIC SPENDING, RATE OF RETURN TO CAPITAL, RATES OF RETURN, REAL WAGES, RESOURCE ALLOCATION, RETURNS, SAVINGS, STATE EQUILIBRIUM, SUBSISTENCE HOUSEHOLD, SUBSISTENCE HOUSEHOLDS, TANGIBLE ASSET, TAX, TAX RATE, TAX REVENUES, TOTAL CAPITAL STOCK, TOTAL FACTOR PRODUCTIVITY, TOTAL LABOR FORCE, TOTAL REVENUE, UNIT OF CAPITAL, UPWARD SHIFT, UTILITY FUNCTION, WAGE INCREASES, WAGE RATES, WAGES, WEALTH,
Online Access:	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20090324133542 https://hdl.handle.net/10986/4069
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