Economic divergence and the role of disasters in Mexico and Central America

Abstract

Traditionally, disasters have not been considered as factors that influence economic growth and convergence or divergence between countries. Using macroeconomic and disaster data for Mexico and Central America, it was found that disasters generate a negative effect on economic growth and exacerbate divergence. If disasters are omitted in the convergence-cointegration analysis, the results may be biased. With divergence, very small and poor economies compared to slightly richer economies, enter a vicious cycle in which they tend to increasingly diverge or to converge to lower levels of economic growth in the long run.