The long-run socio-economic consequences of a large disaster: The 1995 earthquake in Kobe

Abstract

We quantify the ‘permanent’ socio-economic impacts of the Great Hanshin-Awaji (Kobe) earthquake in 1995 by employing a large-scale panel data set of 1,719 wards from Japan over three decades. In order to overcome a fundamental difficulty of identifying the counterfactual, i.e., the Kobe economy without the earthquake, we adopt the synthetic control method of Abadie et al. (2010). Three important empirical patterns emerge: First, the population size and especially the average income level in Kobe have been lower than the counterfactual level without the earthquake for over fifteen years, indicating a permanent negative effect of the earthquake. Such a negative impact can be found especially in the central areas which are closer to the epicenter. Second, the surrounding areas experienced some positive permanent impacts in spite of short-run negative effects of the earthquake. Third, the furthest areas in the vicinity of Kobe seem to have been insulated from the large direct and indirect impacts of the earthquake.