Global Change, Catastrophic Risks and Sustained Economic Growth: Model-based Analysis

This paper analyzes the effects of catastrophes on two types of regions referred to as developed and developing. Economic development of regions is measured in terms of gross domestic product (GDP) per capita and incomes are considered to be the main factor driving demand for ex-ante catastrophe management arrangements. We show that the same magnitude shocks affect regions differently. While a developed country has sufficient resources to cope with catastrophes, the developing may stagnate or even collapse without appropriate catastrophe mitigation measures or external aid that is needed only until sustained growth takes off. The analysis relies on a stochastic multiregional growth model that embeds mechanisms enabling the design of robust strategies ensuring sustained performance of regions under catastrophes at any time that they may occur. Resilience of regions is estimated with respect to the abundance of internal and external resources, e.g., capital labor and catastrophe fund, to adequately confront the shock and to maintain regional growth on a "satisfactory" level