Disasters may have a significant impact on the national economy of the country concerned. Some countries lose annually up to 1% or more of their annual GDP as a consequence of recurring natural disaster; in individual cases, damages have been as high as 50% of GDP. The typical Chinese loss experience in bad years is in the range of 5-7% of annual GDP. In 1974, losses in Honduras from Hurricane Fifi were equivalent to 50% of the country's 1973 GDP (Hooke, 2000). Setbacks in development may have been up to 1 decade or more. The majority of these damages usually are covered by the affected population itself or from other domestic sources (United Nations, 1994). In some cases, the relation between GDP and disasters is ambiguous because post-disaster investments may increase GDP. Long-term problems arise when the return period of a disaster is the same order of magnitude or smaller than the time needed for reconstruction. In such cases, the economy of a country or a specific region is likely to spiral downward (Downing et al., 1999). In fact, GDP is a very limited way of describing the impact of weather-related disasters. For example, the UN has defined a disaster as large when the ability of the region to cope with the effects of the disaster on its own is exceeded.

Urban and rural infrastructure loss in the developing world as a result of natural disasters has impacted the activity of the world's international lending institutions. The World Bank has estimated that it has loaned US$14 billion to developing countries in the past 20 years for damages from natural disasters. This amount is nearly 2.5 times the amount loaned by the Bank for relief from civil disturbance worldwide (Kreimer et al., 1998). The Asian Development Bank (ADB) has estimated that between 1988 and 1998, 5.6% of ADB loans were for disaster rehabilitation. In 1992, nearly 20% of ADB loans were for rehabilitative assistance to natural disaster recovery (Arriens and Benson, 1999). The World Bank has estimated that during the past decade in Mexico, as much as 35% of its lending earmarked for infrastructure has been diverted to pay for the costs of (Mexican) natural catastrophes (Freeman, 1999). In recent years, the World Bank has recognized the importance of disaster prevention and mitigation for development and poverty reduction (Kreimer and Arnold, 2000).

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