The Impact of Natural Disasters on Credit Creation: Evidence from Middle East and North African (MENA) Countries

This study investigates the impact of climate-related natural disasters on credit creation in Middle East and North African (MENA) countries compared to non-MENA countries. Using a fixed-effects panel regression model and a dataset covering 22 MENA and 200 non-MENA countries from 1974 to 2022, we find that natural disasters lead to increased credit creation in MENA countries, whereas their impact on credit creation is statistically insignificant in non-MENA countries. Further analysis reveals that the relationship between natural disasters and credit creation varies by income level: high-income MENA countries experience increased credit creation following natural disasters, while low-income non-MENA countries show a negative relationship. Our findings are robust across various econometric specifications, including a two-step system generalized method of moments regression and propensity score matching. This study contributes to the ongoing debate on the economic implications of natural disasters in the MENA region by providing empirical evidence on their effect on credit creation. The results offer important policy implications for financial regulators, policymakers, and institutions in MENA, highlighting the need for effective risk management strategies to mitigate the effects of such disasters on the credit creation mechanism.