Flood risk and economic losses in Earth-water systems: The role of resilience and institutional governance under climate variability

Abstract

This study examines how hydroclimatic variability translates into economic flood damages across global hydroscapes and evaluates the moderating effects of institutional capacity and national resilience. This study integrates flood damage and frequency data with precipitation anomalies, the El Niño-Southern Oscillation (ENSO), GDP per capita (income levels), governance quality from Worldwide Governance Indicators (WGI), and adaptive capacity that is, Notre Dame Global Adaptation Initiative (ND-GAIN) by using panel data for 168 countries from 2000 to 2023. Methodologically, the study employs two-way fixed-effects models with Driscoll-Kraay robust inference, complemented by nonlinear specifications and spatial hotspot analysis. The results indicate that a one-year lag of precipitation anomalies reduces flood damages by approximately 11% (β = −0.116, p < 0.05), while precipitation anomalies significantly reduce flood event counts (β = −0.028, p < 0.05), suggesting short-term adaptation or recovery effects. The findings also show that ENSO effects remain heterogeneous and globally weak. Conversely, higher-income levels correlate with more reported flood events, reflecting increased exposure and reporting intensity. Crucially, while national resilience dampens the sensitivity of flood occurrence to hydroclimatic variability, its moderating effect on realized economic damages remains limited at the annual national scale. Spatial analysis further reveals persistent clusters of high vulnerability, underscoring geographic concentrations of risk. These results suggest that while governance and resilience investments reduce hazard sensitivity, minimizing economic losses requires more targeted, place-based adaptation strategies. These findings highlight the importance of strengthening institutional governance and targeted adaptation investments.