DISASTER AND ECONOMIC STRUCTURAL CHANGE: CASE STUDY ON THE 1995 KOBE EARTHQUAKE

Abstract

In 1995, the Kobe Earthquake occurred in the second largest economic region of Japan, and its economic damages were accounted around 10 trillion yen. A catastrophic event of this magnitude would have surely created some long-run effects to the regional economy as well as to the surrounding regions. Additionally, the recovery and reconstruction activities would have affected the economic structure of the region and interdependence between regions in a potentially different way from the original growth trend before the event. While these long-run economic effects may have become sizable, few studies have been conducted to empirically measure or evaluate such effects, due to the significant noises in economic data muddled with macroeconomic influences from the outside. This paper presents an empirical investigation of long-run economic effects of the Kobe Earthquake, using structural decomposition methods. The results indicate significant changes in economic structure of the Kobe economy, and the changes are quite different across sectors and among factors. An additional investigation using shift-share analysis yielded the regional-specific changes; the corresponding decomposed factors of structural analysis with shift-share results appear complicated, and changes in regional final demand were found to be most influential to the changes in output for many sectors.