Assessing the Economic Effects of Emergency Declarations Using a New Approach

With the number of disasters increasing over the last four decades, it has become crucial to find policies that can mitigate their consequences. One of the methods used by governments is declaring a state of emergency. However, the effect of using this tool on the economic performance of a country has not been studied previously. Thus, the aim of this paper is to examine the effects of states of emergency on the economy when natural disasters take place. To do so, we rely on a synthetic control method. The effect of calling a state of emergency on economic performance is evaluated in terms of changes in real GDP per capita and the effect is measured by comparing the performance of the original “exposed” country to the performance of a calculated synthetic country. We find that both natural disasters and implementing a state of emergency lead to a reduction in GDP per capita growth relative to the synthetic control. Key Terms: Economic Crises, Rule of Law, Natural Disasters. JEL classification: G01, K40, O17, O43. 1 The German University in Cairo, New Cairo, 11835 Cairo, Egypt, Phone: +20-2-7589990-8, E-mail: nada.maamoun@guc.edu.eg 2 Institute of Law & Economics, University of Hamburg, Johnsallee 35, 20148 Hamburg, Germany, Phone: +49-40428383040, E-mail: jerg.gutmann@uni-hamburg.de 3 Institute of Law & Economics, University of Hamburg, Johnsallee 35, 20148 Hamburg, Germany, Phone: +49-40428385782, Fax: +49-40-428386794, E-mail: stefan.voigt@uni-hamburg.de.