Globally, natural disasters are responsible for at least 60,000 deaths annually. Historically, floods and droughts were the most tragic calamities because most societies depended on agricultural-based economy (Ritchie & Roser, 2019). However, the trend of calamities in terms of severity of human life, infrastructure, and the economy has changed. Today, earthquakes and tsunamis are some of the most catastrophic natural tragedies in regards to economic consequences and loss of lives (Ritchie & Roser, 2019). Earthquakes, for instance, occur across the world much more frequent. The economic cost of disasters is constantly on the rise as well. This is attributed to the increase in international Gross Domestic Product (GDP) since the 1970s (Ritchie & Roser, 2019). In particular, the direct and subsidiary economic losses from the 2011 Japanese earthquake and tsunami were experienced in most parts of the country, and spread to others regions (Cooper, Donnelly, & Johnson, 2011).
Economic Consequences of Natural Disasters
The rise of natural calamities due to climate change has resulted in considerable economic consequences. Firstly, natural disasters can lead to indirect economic loss in terms of the decline of wages (Panwar & Sen, 2019). Secondly, direct economic losses may include the destruction of property and the reduction of human capacities to work. Natural tragedies have temporal and lasting consequences. For instance, earthquakes can affect economic activities temporarily because of direct and indirect damages. In addition, the loss of capital and labor are short-term direct impacts that can result in further economic losses such as the reduction in production or output. Panwar and Sen (2019) clarify that in the long-term, natural catastrophes can disrupt physical and human capital. For example, the destruction of infrastructures can lower the production ability, therefore, resulting in long-term negative impacts. Interestingly, natural tragedies can also create opportunists costs. In particular, the mobilization of reconstruction resources may create growth opportunities for some people (Panwar & Sen, 2019). Away from that, the 2011 earthquake disaster in Japan almost crippled the economy of the country. The government responded by outlining a ten-year plan to recover its economy. This illustrates that natural disasters can cause long-term negative economic effects, which require immense response.
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The Case of Japanese
The Tohoku earthquake and the subsequent tsunami resulted in considerable economic losses. Estimates based on macroeconomic models have established that the Japanese earthquake slowed the growth of the real GDP by at least 0.2 percent in 2011 (Kajitani, Chang, & Tatano, 2013). At the same time, the GDP of Japan declined drastically in the initial two quarters in 2011 by negative 1.3 and 1.6 respectively. The third and fourth quarters also experienced considerable stagnation of the GDP. In the first year after the disaster, more than 650 companies (with at least 10,000 employees) went into voluntary liquidation and bankruptcy (Kajitani eta al., 2013). The disaster had both direct and indirect consequences on the economy. Although is it hard to quantify the indirect impacts, studies have established that the northern parts of Japan experienced high direct economic consequences (Cooper, Donnelly, & Johnson, 2011).
The disaster resulted in varying economic consequences across different localities in Japan. There were areas that recorded economic consequences due to the earthquake, tsunami, nuclear power accidents, and electrical power shutdown. The coastal regions were primarily affected by the tsunami, resulting in the loss of human lives and considerable damage to infrastructure. More than 46,000 business establishments recorded catastrophic losses in the tsunami prone areas (Kajitani et al., 2013). On the other hand, the earthquake-affected regions had most businesses compared to the tsunami coastal regions.
Image 1: Aftermath of 2011 earthquake in Japan
Source: (Cooper et al., 2011)
The aftershocks of the quake damaged thousands of buildings and industrial facilities. All areas affected by the earthquake and tsunami recorded extensive damage in terms of land, sea, and air transportation infrastructure, compounding the economic losses (Kajitani et al., 2013). Although the nuclear zone had fewer businesses and smaller population size, the economic losses were higher because of several factors such as compulsory evacuation of people and radiation contamination. Moreover, there was a considerable reduction in the generation of power, and most businesses suffered from power disruptions.
Economic Impact on Major Sectors . The economic losses from manufacturing are typically large and occur immediately after a disaster. It is estimated that Japan’s manufacturing sector lost up to 309 billion USD, which translates to more than 5 percent of GDP (Cooper et al., 2011). Mostly, the manufacturing sector suffered damages from the earthquake and tsunami. Fuel shortages and power disruptions delayed the rescue and recovery processes. Most nuclear plants remained inoperative until repairs were made to enhance their safety. This means that Japan’s productive capacity, particularly in Tokyo declined because of power disruptions. According to Cooper et al. (2011), the main regions in eastern Tohoku that suffered from the disaster accounted for at least 6 percent of Japan’s economy. For instance, Sendai city, which is largely agricultural, is also known for its high number of industrial equipment. By mid-March 2011, at least all lading automakers in the country had temporarily halted their operations in some plants due to power disruptions (Cooper et al., 2011).
The disaster also affected the retail industry. The aftermath effects or consequences of the disaster hampered the operations of the retail industry. For instance, there was a reduction of sales, particularly in the Tohoku location (Kajitani et al., 2013). The retail sales in this region went down by more than 20 percent after the tragedy. In March 2011, Japan’s retail industry recorded a percent decline in terms of sales. Image 2 below illustrates the destruction of the tsunami. The roads are impassible, hampering retail operations.
Image 2: Minato, Japan, seven days after the Tsunami
Source: (Cooper et al., 2011)
Ocean fishing and aquaculture are the leading economic industries in the tsunami-affected places. Based on 2009 census, Miyagi, Fukushima, and Iwate accounted for at least 20 percent of fish production in Japan (Kajitani et al., 2013). The tsunami destroyed fishing equipment, including boats and ports. The loss was estimated to exceed the yearly fishing industry by far. Overall, Miyagi, Iwate, and Fukushima recorded more than ¥ 1, 000 billion losses (Kajitani et al., 2013).
The disaster had a considerable effect on the supply network. The reduction in manufacturing and damage to the production of intermediate goods resulted in the scarcity of final products in Japan and globally. For instance, the distribution of auto parts reduced in Japan, Europe, and the U.S. The short supply of parts caused a global decline in the manufacture of automobiles (Kajitani et al., 2013).
Government Response . After the disaster, the Japanese government established a ten-year plan for economic recovery. There were specific objectives such as restoring housing and infrastructure. The government focused on restoring major infrastructures, including airports, roads, railways, and bridges (Reid, 2019). Overall, the government responded by establishing budgets, creating new laws, and formulating Reconstruction Agency. In the first five years of the ten-year plan (2011-2015), the government set aside $250 billion to help businesses. In the second phase, 2016-2020, the state allocated $65 billion for reconstruction and recovery (Reconstruction Agency).
Specifically, the government established supplementary budgets totaling $221 billion as a response to the disaster. The first and second supplementary budgets, ¥4 trillion, and ¥2 trillion respectively geared towards addressing the immediate impact of the disaster. Towards the late 2011, the government adopted a third supplementary budget for reconstruction purpose. The supplementary budgets supported the public sector, energy, and employment. The government mainly focused on infrastructure, followed by grants to businesses. Like in other disasters, the Japanese government invoked the “Act on Special Financial Support” to respond to stark business losses (Kajitani et al., 2013). The government covered at least 90 percent of the recovery expenses such as infrastructure damage. However, the increase in tax and recovery bonds played a critical role in financing supplementary budgets (Umezawa, 2014).
Conclusion
The economic effect of the 2011 earthquake in Japan was considerable in several aspects: from the terrible nature of direct economic damage to government response. The disaster represents the modern example of how an economically developed nation can respond to natural catastrophes with measurable economic losses, particularly in regards to the decline of the GDP. The major direct economic loss is linked to the earthquake because of ground shaking, which caused considerable damage to infrastructure such as nuclear power plants. Overall, the Japanese case demonstrates how natural tragedies can disrupt major sectors of the economy. As illustrated above, natural disasters result in indirect and direct economic consequences. The loss of properties and human labor are some of the direct economic consequences. It is easier to quantify direct impact on the economy as opposed to the indirect one. This is because direct losses tend to be physical and affect most people. Moreover, the response from the Japanese government helps to depict short-term and long-term economic that result from major natural disasters. Japan has used billions of USD to reconstruct the infrastructure and recover its economy. However, it increased taxes in order to acquire reconstruction funds. In general, the direct effects on the economy are more severe and easily quantifiable compared to the indirect ones.
References
Cooper, W. H., Donnelly, J. M., & Johnson, R. (2011). Japan's 2011 earthquake and tsunami: economic effects and implications for the United States. Congressional Research Service , 1-14.
Kajitani, Y., Chang, S. E., & Tatano, H. (2013). Economic impacts of the 2011 Tohoku-Oki earthquake and tsunami. Earthquake Spectra , 29 (1_suppl), 457-478.
Panwar, V., & Sen, S. (2019). Economic impact of natural disasters: An empirical re-examination. Margin: The Journal of Applied Economic Research , 13 (1), 109-139.
Reconstruction Agency. (n.d.). Reconstruction agency . 復興庁 . https://www.reconstruction.go.jp/english/
Reid, K. (2019, May 7). 2011 Japan earthquake and tsunami: Facts, FAQs, and how to help . World Vision. Retrieved June 1, 2020, from https://www.worldvision.org/disaster-relief-news-stories/2011-japan-earthquake-and-tsunami-facts
Ritchie, H., & Roser, M. (2019, November). Natural disasters . Our World in Data. Retrieved June 1, 2020, from https://ourworldindata.org/natural-disasters
Umezawa, S. (2014). The great east Japan earthquake: Its damages, impacts on the labor-economy and restoration measures of the government. E-Journal of International and Comparative Labour Studies , 3 (3), 21-42.
