Hurricane Mitch and consumption growth of Nicaraguan agricultural households

Abstract

Risk has been presented as a cause of poverty persistence under imperfect insurance mechanisms. This paper assesses the ex post effect of hurricane Mitch on consumption growth of Nicaraguan agricultural households. How persistent was Mitch’s direct impact beyond October 1998 damage? A nationally representative panel is available for 1998 and 2001, but affected households were re-surveyed in 1999. Given the data design, idiosyncratic and common dimensions of the shock can be disentangled, together with its short and medium-term impacts. Satellite rainfall observations are interpolated at municipal centres to complement survey reports of hurricane-induced losses. Within the treated sample, micro-growth model estimates only point to a limited short-term negative impact idiosyncratic damage, at most through floods and displacement. Mitch’s medium-term common impact is considered on an experimental set-up. Household affected by Mitch do not suffer from lower growth between 1998 and 2001, even accounting for special heterogeneity. Overall, hurricane Mitch’s direct consumption impact thus exhibits little persistence