6. Discussion and conclusion
We explore the impact of natural disasters on income inequality in Sri Lanka at district level, the first study of this nature for the country. We construct a unique panel dataset for the purpose that includes inter alia district wise inequality/income measures and percentages of population affected due to natural disasters in each district for the six survey periods of the HIES series between 1990 and 2013. Using panel fixed effects estimator as the main empirical strategy we find that contemporaneous natural disasters and their immediate lags decrease district level income inequality as measured by the Theil index, and substantially so. These results are robust across alternative inequality metrics, sub-samples and alternative estimators. However, we do not find any evidence to the effect that natural disasters affect household expenditure inequality. This is possible if households do not change their expenditure patterns despite their income being affected by disasters or if they might reduce their expenditure proportionately across income quintiles as a result of disaster consequences.
Further analyses suggest that although natural disasters negatively affect household income across all the quintiles, rich quintiles disproportionately bear direct disaster damages at a higher cost. Even though the poor are more vulnerable to disasters, when the poor live a subsistence lifestyle and if they do not possess or own much material assets, their losses will be less compared to the rich. Rich may lose income deriving capital assets more due to destruction and through sale as a coping strategy. On the other hand, if the poor are mainly engaged in low-skilled or unskilled labour they can easily diversify their income sources in the aftermath of a natural disaster. Whilst the rich may suffer profit losses, disasters may open the poor a door for new opportunities.