Natural disasters, self-insurance, and human capital investment
IFPRI discussion paper 00881:
This paper uses panel data from Bangladesh, Ethiopia, and Malawi to examine the impacts of disasters on dynamic human capital production. The paper shows that accumulation of biological human capital formed in early childhood (for example, good long-term nutritional status) helps insure resilience to disasters by protecting schooling investments and outcomes, even though disasters have negative impacts on the actual investments (for example, by destroying schools).
In Bangladesh, children with more biological human capital are less adversely affected by flood, and the rate of investment increases with the initial human capital stock during the post-disaster recovery process. In Ethiopia and Malawi, where droughts are relatively frequent, repeated drought exposure reduces schooling investments in some cases, with larger negative impacts seen among children who embody less biological human capital.
The results suggest that as the frequency of natural disasters increases due to global warming, the insurance value of investments in child nutrition will increase, and that public investments in child nutrition therefore have the potential to effectively protect long-term human capital formation among children who are vulnerable to natural disasters.