When typhoon strike: the impact of natural disasters on the saving behavior of households in Philippines
Date
2016-12
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Abstract
While macroeconomic evidence suggests that natural disasters generally weaken the economy,
there still is a lot of debate over how these environmental catastrophes might impact savings.
One approach through which the indefinite relationship between savings and natural disasters
could be explored is by looking at how individuals adjust their saving behavior after an
uncertainty shock. Certain hypotheses and assumptions in behavioral economics offer
explanations regarding the apparent consumption and saving patterns observed in individuals in
the presence of risk and uncertainty. In this paper, we test the permanent income–life cycle
hypothesis and the precautionary motive assumption in the context of a developing nation which
predict that the risk and uncertainty brought by natural disasters will stimulate individuals to
save. Household data and typhoon data were analysed using fixed and random effects regression
in order to examine the relationship between household saving behavior and natural disasters.
While the results were not as significant as what was projected, the link between the variables of
interest, nevertheless, provided further evidence on the positive correlation between natural
disasters and household savings.
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Keywords
typhoon, natural disaster, savings