Disasters and capital accumulation: the case of Southeast Asia

Countries in Southeast Asia are highly exposed to disasters and the exposure is increasing in recent years. Capital accumulation is one of the important factors as a buffer to shocks of disasters. We examine the impact of disasters on capital accumulation in selected Southeast Asian countries, using a dynamic stochastic general equilibrium (DSGE) approach. The result shows that frequent disasters lower the long-term capital stock. This paper also discusses policy measures of promoting capital accumulation and compare two policy options: i) providing subsidies to incentivize further investment; and ii) encouraging competition and concludes that a competitive environment will be critical to strengthen capital accumulation against disasters.