The economic impact of supply chain disruptions from the Great East-Japan earthquake

Abstract

The Great East-Japan Earthquake of March 11th, 2011 had a serious negative economic impact on the Japanese economy. The earthquake substantially reduced production not only in regions directly hit by the earthquake but also in other parts of Japan through supply chain disruptions. We examine the economic impact of the supply chain disruptions immediately following the earthquake using a unique interregional input-output table combining two different regional IO tables, the JIP database, and other regional statistics. To conduct our analysis, we modify the forward linkage methodology to take into account the bottleneck effect in the intermediate input of manufacturing production. Our estimates show that the production losses caused by the supply chain disruptions would amount to at least 0.35% of the country’s GDP. We also analyzed how establishing multiple supply chains would work to mitigate the damage of potential natural disasters in the future. However, as multiple supply chains may lose production efficiency at the firm level, we would require policies that provide incentives to firms that diversify supply chains.