International Cooperation and Natural Disasters: Evidence from Trade Agreements

Abstract

Abstract Environmental shocks in the form of natural disasters are well known for their impact on domestic economies. Less known, however, is their impact on the global economy. The scant existing literature suggests that macro-economic impacts manifest in observed empirical decreases in international trade. The literature, however, does not examine whether the impact of natural disasters on trade varies for trading partners with differing levels of market integration. This paper examines if preferential liberalization serves to protect or buffer against the negative economic consequences of natural disasters. I show that deep preferential liberalization can not only protect countries against the negative macro-economic impact of natural disasters but can actually allow countries to increase exports during natural disaster events that otherwise induce trade decline. These findings suggest that by allowing countries to expand the quantity and the range of exports, preferential trade agreements lead to enhanced resilience against exogenous shocks.