The Binary constrained Disaster (BinD) model
Disasters impose large costs on developing economies. Following the initial shock of the disaster event, the immediate priority is to save lives and meet the basic needs of survivors in terms of food, clothing and shelter. In addition, infrastructure must be rebuilt and livelihoods re-established. These tasks must be completed as sustainably, equitably, and resiliently as possible.
The BinD model aids in the evaluation of pre-and post-disaster policy options by simulating dynamically alternative macroeconomic recovery pathways. Building on a structuralist macroeconomic tradition, the BinD model represents the importance of public expenditure, foreign exchange, and domestic savings in enabling sustained economic growth. Being demand-driven in normal times, it allows for the notion of a regime shift, that is, the possibility for an economy to operate within supply constraints in the event of a disaster.
Key features of the BinD model include:
- Demand-driven economy in non-disaster times
- Supply constraints may emerge during post-disaster recovery, dependent on the magnitude of initial disaster shocks and the economy’s capacity to cope
- The developing economy faces an allocative choice problem between consuming today versus investing for tomorrow
- Government investment may crowd-in/out private investment
The distinction of a supply vs. demand driven ‘regime’ is an important one, as our understanding of situation-dependent post-disaster economic operation allows for a more nuanced design of policy prescriptions.
Depending on the magnitude of a disaster shock and an economy’s capacity to absorb it, it may be more effective to adapt demand-side policies (e.g., government investment spending and household income transfers) or to follow a supply-side strategy (e.g., increasing foreign and domestic savings) in supporting disaster recovery.
Policy relevant insights from BinD
The BinD model may give insights on policy questions such as:
- How fast will an economy recover under different post-disaster policies?
- How will import goods requirements, foreign loan payments, and export demands affect a country’s balance of payments post-disaster?
- Will an investment gap appear post-disaster, and if so what is needed in terms of domestic and foreign resources to close such a gap?
The BinD model is currently being used to analyze cyclone risk in Madagascar under the MACRO project.
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