Conference Agenda

We study the macroeconomic responses of Chilean regions to natural disasters—floods and wildfires—using local projections and both public and novel administrative data. We document persistent GDP losses, temporary declines in consumption, and a delayed recovery of investment, accompanied by rising employment but falling wages and effective hours. These dynamics contrast with U.S. county-level evidence and point to the importance of disaster size, as well as institutional and financial conditions, in shaping post-disaster recoveries in emerging economies. We interpret the evidence through four mechanisms: destruction of productive capital, tighter financial conditions that constrain rebuilding, reallocation of production, and household wealth losses that depress consumption while supporting low-wage reconstruction employment. Embedding these mechanisms into a real business cycle model with financial frictions, we show that financial constraints are quantitatively central: absent these frictions, post-disaster losses in economic activity during the first years would be reduced by about one half. Our findings highlight the role of financial and reconstruction policies in mitigating the long-run economic costs of climate-related disasters.