In the Eye of the Storm - The Welfare Impacts of a Hurricane

The impact of a large covariant shock, namely Hurricane Mitch, is examined in the context of household asset holdings in rural Nicaragua utilizing household panel data from the period. It is found that the hurricane did not have an adverse impact on the ownership of productive assets among the affected households on average. On the other hand, nonproductive asset holdings seem to have been significantly reduced. A further examination confirms that the shock affected the poorest households disproportionally, especially in terms of nonproductive assets. Finally, this study presents strong suggestive evidence of a geographical poverty trap within the shock-affected areas of the country.