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The macroeconomic impacts of natural disasters: a case study of Japan

  • December 2012
Authors:
Go Shimada at Meiji University
Go Shimada
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Abstract

There is no consensus as to whether natural disasters have a positive or negative impact. Previous literature fails to capture the heterogeneous characteristics of natural disasters. Most studies use the number of disasters that have occurred in a country as an explanatory variable. Considering the nature of most disasters, their direct impact is local rather than national. For empirical study, then, it seems to be more appropriate to use disaggregated data to capture the heterogeneous nature of disasters. To tackle these issues, this study investigates the impact of natural disasters on the growth rate of gross prefectural domestic product, utilizing the 47 prefectural governments’ unbalanced panel data on Japan for twenty years from 1975 to 1995. The empirical study first investigated the relationship between “average annual per capita growth rate over the 1970–98 period” and “natural log of the number of victims.” The study found a negative and statistically significant relationship. The paper employed conventional panel data analysis methods (pooling cross-sections across time, fixed effects and random effects estimation), Prais-Winsten estimation, PCSE (panel-corrected standard error) and the system GMM (General Method of Moments) since the economic model includes a lag variable, and to tackle the issue of endogeneity. Unlike several past studies, which found positive long-term effects of natural disasters, this paper found that the impacts are robustly negative according to our analyses. This study indicates that policies need to take a long-term view, not only in terms of recovery but also in terms of strategies for reconstruction.
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