Protective Capital Theory in Overlapping Generations Model: An Empirical Study of the Role of Natural Disasters in Poverty Trap

We study a protective role for capital and investigate its impact on the occurance of poverty. We assume that protective capital accumulation, in an overlaping generations model, fends off productive capital against natural disasters. To test this theory, an econometric model examines the relationship between poverty headcount ratios and disaster indices with control variables such as income and inequality for 78 developing countries. The data is extracted from World Bank Database (2009) for the priod 2000-2006. The analysis is also expanded for the growth rates of the variables between the first half of the 1990s and the last available data in 2000-2006. The results suggestan emirically siginificant effect of disaster on poverty indices, income controlling, inequality, and dummy variables of subsaharan african countries.Policy recommendation: attemps towards the prevention and management of damages from crises directly reduce the poverty level. In contrast, injection of foreign investment is ineffective in case of protective capital shortage