What Happened to Kobe? A Reassessment of the Impact of the 1995 Earthquake in Japan

The conventional wisdom that the devastation wrought by the 1995 Kobe (Great Hanshin-Awaji) earthquake did not have any long-term impact on the Japanese economy, or much impact on Kobe itself, is wrong. We reevaluate the evidence using a new methodology, synthetic control, and find a persistent and still continuing adverse impact of the quake on the economy of Kobe more than a decade after the event. Using the methodology developed by Abadie et al. (Journal of the American Statistical Association, 2010), we construct counterfactual dynamics for the Kobe economy. We identify a decline in per capita GDP that is attributable to the quake and is persistent, long-term, and clearly observable even 13 years after the quake. GDP per capita for 2008 was ¥400,000 per person lower (12% decrease) than it would have been had the earthquake not occurred. Importantly, this adverse long-term impact is identified in a wealthy region of a high-income country and with the backing of a deep-pocketed fiscal authority.

[1]  Ilan Noy,et al.  Natural Disasters and the Economy — A Survey , 2011 .

[2]  E. Feser,et al.  The unemployment impact of the 1993 US midwest flood: a quasi-experimental structural break point analysis , 2014 .

[3]  E. Strobl.  The economic growth impact of natural disasters in developing countries: Evidence from hurricane strikes in the Central American and Caribbean regions , 2012 .

[4]  E. Cavallo,et al.  The Economics of Natural Disasters: A Survey , 2009 .

[5]  Paolo Pinotti,et al.  The Economic Costs of Organised Crime: Evidence from Southern Italy , 2015 .

[6]  Ilan Noy,et al.  SEF Working paper : 13 / 2012 August 2012 The 1960 tsunami in Hawaii : Long term consequences of a coastal disaster , 2012 .

[7]  Ariel R. Belasen,et al.  How Disasters Affect Local Labor Markets: The Effects of Hurricanes in Florida , 2007 .

[8]  Lee， Myeong-Hun,et al.  Exploring a Restoration Progress for the Earthquake Victims in Japan - Focused on Support for Housing Reconstruction in Kobe City after the Great Hanshin-Awaji Earthquake - , 2014 .

[9]  David E. Weinstein,et al.  A Search for Multiple Equilibria in Urban Industrial Structure , 2004 .

[10]  Jacob L. Vigdor.  The Economic Aftermath of Hurricane Katrina , 2008 .

[11]  Ilan Noy,et al.  Catastrophic Natural Disasters and Economic Growth , 2010, Review of Economics and Statistics.

[12]  Ilan Noy,et al.  What do exogenous shocks tell us about growth theories , 2007 .

[13]  Paul Nightingale,et al.  الهدم الخلاق Creative Destruction , 2014 .

[14]  Goetz von Peter,et al.  Unmitigated Disasters? New Evidence on the Macroeconomic Cost of Natural Catastrophes , 2012 .

[15]  Eiji Yamamura.  Natural disasters and their long-term effect on happiness: the case of the great Hanshin-Awaji earthquake , 2012 .

[16]  R. Tol,et al.  Disasters and Development: Natural Disasters, Credit Constraints and Economic Growth , 2011 .

[17]  F. Ohtake,et al.  Impacts of the Great Hanshin-Awaji Earthquake on the labormarket ithw disaster areas , 2012 .

[18]  P. Pinotti.  The Economic Costs of Organized Crime: Evidence from Southern Italy , 2012 .

[19]  C. Hsiao,et al.  Disentangling the Effects of Multiple Treatments — Measuring the Net Economic Impact of the 1995 Great Hanshin-Awaji Earthquake , 2014 .

[20]  Stephanie E. Chang,et al.  Disasters and transport systems: loss, recovery and competition at the Port of Kobe after the 1995 earthquake , 2000 .

[21]  Changes in durable stocks, portfolio allocation, and consumption expenditure in the aftermath of the Kobe earthquake , 2011 .

[22]  Edward Miguel,et al.  The Long Run Impact of Bombing Vietnam , 2006 .

[23]  Marc Schramm,et al.  Looking for Multiple Equilibria When Geography Matters: German City Growth and the Wwii Shock , 2005, SSRN Electronic Journal.

[24]  Ilan Noy,et al.  Hurricane Iniki: measuring the long-term economic impact of a natural disaster using synthetic control , 2011, Environment and Development Economics.

[25]  Y. Sawada,et al.  How Do People Cope with Natural Disasters? Evidence from the Great Hanshin‐Awaji (Kobe) Earthquake in 1995 , 2008 .

[26]  Disasters and Development: Natural Disasters, Credit Constraints and Economic Growth , 2011 .

[27]  Daniel P. Aldrich,et al.  The power of people: social capital’s role in recovery from the 1995 Kobe earthquake , 2011 .

[28]  Shohei Beniya.  The Evaluation of the Status of Disaster Areas by using Recovery Indicators ( In the case of the Great Hanshin-Awaji Earthquake ) , 2014 .

[29]  Paul K. Freeman,et al.  Dealing with Increased Risk of Natural Disasters: Challenges and Options , 2003, SSRN Electronic Journal.

[30]  E. Cavallo,et al.  In the Aftermath of Large Natural Disasters, what happens to foreign aid? , 2010 .

[31]  George Horwich,et al.  Economic Lessons of the Kobe Earthquake , 2000, Economic Development and Cultural Change.

[32]  M. Skidmore,et al.  DO NATURAL DISASTERS PROMOTE LONG‐RUN GROWTH? , 2002 .

[33]  Ilan Noy.  The macroeconomic consequences of disasters , 2009 .

[34]  Stephanie E. Chang,et al.  Urban disaster recovery: a measurement framework and its application to the 1995 Kobe earthquake. , 2010, Disasters.

[35]  Ilan Noy,et al.  Foreign Aid in the Aftermath of Large Natural Disasters , 2012 .

[36]  Alberto Abadie,et al.  The Economic Costs of Conflict: A Case Study of the , 2003 .

[37]  Jens Hainmueller,et al.  Comparative Politics and the Synthetic Control Method , 2014 .