This research project studies how historical experiences with disasters shape the expectations of governments regarding future disasters and thereby their willingness to insure against such risks (“country insurance”). More specifically, our main hypothesis is that disaster experiences will encourage governments to take more precautionary measures going forward – either in the form of self-insurance (hoarding of reserves) or in the form of cross-border mechanisms of country insurance and risk sharing via (i) international financial institutions (IFIs), (ii) central bank swap networks, or (iii) bilateral (government-to-government) lending.
To test this hypothesis, we construct two new databases that quantify disasters and country insurance over the course of the past two centuries. For this purpose, we define and measure disasters in a new and comprehensive way that combines (i) financial crises, (ii) conflicts and wars, (iii) natural disasters and (iv) disease epidemics. Importantly, we do not only account for the occurrence and frequency of disasters, but also quantify the associated economic costs by using a broad variety of macroeconomic measures. Secondly, we compile a database on the “Global Financial Safety Net” across 200 years.