Pre-disaster planning and post-disaster aid: Examining the impact of the great East Japan Earthquake
Introduction
As the world economy continues to grow and an increasing proportion of the population lives in cities and urban areas it is important to understand how economic resilience to natural disasters can be influenced by the actions of firms and governments. The risks associated with a changing climate and a range of geo-hazards from earthquakes to extreme weather events such as typhoons, floods, and rising sea levels will present significant challenges to countries and cities. It is important, therefore, that governments are able to design and implement policies to mitigate against the negative impact of natural disasters to enable their economies to cope with current and future geo-hazards some of which are predicted to increase in frequency and magnitude. With continued agglomeration of economic activity in urban conurbations, obtaining a clear understanding of how countries, firms and people are able to adapt to current and future environmental and geo-hazard risk is of importance to both academics and policymakers.1
In this paper we use detailed plant-level surveys to examine the short term impact of the Great East Japan earthquake of 2011 on the performance of manufacturing plants. The Great East Japan earthquake struck off the Pacific coast of Tohoku at 14.46 (JST) on Friday 11 March 2011 with a magnitude of 9.0 on the Richter scale. The earthquake also triggered tsunami waves that reached a height of over 40 m and travelled up to 10 km inland.2 In terms of output, the short term economic impact of the earthquake was significant with manufacturing production falling approximately 40% in the immediate Tohoku region before slowly recovering to pre-earthquake levels over the next 12–18 months.3 While at an aggregate level the economy appeared to recover, at the plant-level the situation was mixed with post-earthquake performance depending on a number of factors, including the degree to which the plant was damaged by the earthquake. The focus of this paper is to investigate the effectiveness of two specific factors thought to have influenced the post-earthquake performance of plants; these are whether plants had undertaken pre-disaster planning and whether or not a plant received post-earthquake aid.
An important attribute of earthquakes relevant to our study is that they are inherently local phenomena. As such, although the damage from an earthquake may be spatially extensive, there is considerable heterogeneity across the affected areas. This arises both because the characteristics of the earthquake itself physically differ across space, but also because exposure in terms of buildings and the distribution of the population is likely to be spatially heterogeneous. Thus, any sort of reliable assessment of the damage caused by an earthquake and hence the allocation of pre and post-quake aid needs ideally to take place at the most disaggregated level possible.4
There are a small number of papers that are now beginning to use plant-level data in analyses of natural disasters. For example, Craioveanu and Terrell (Craioveanu and Terrell, 2010) consider the impact of storms on firm survival following Hurricane Katrina while De Mel et al. (2012) conduct a post-disaster field study of surviving enterprises in Sri Lanka following the 2004 Indian Ocean tsunami. Dahlhamer and Tierney (Dahlhamer and Tierney, 1998) examined the 1994 Northridge earthquake and found damage and financial health affected the strength of business recovery. More recently for Japan, Hosono et al. (Hosono et al., 2012) study the effect of banks’ lending capacity on firms’ capital investment using the Kobe earthquake as an exogenous shock, while Cole et al. (2013) examine the impact of the Kobe earthquake on firm survival and performance using detailed building damage measures. In a third Kobe earthquake study Tanaka (Tanaka, 2015) examines the short-term economic impact of the quake assuming that all plants within Kobe suffered the same damage and finds that the earthquake had a significant short term impact on value added and employment. Finally, Todo et al. (Todo et al., 2015) examine the impact of the Great East Japan Earthquake on supply chain networks using similar data to ourselves. They find that extensive supply chains can negatively affect recovery through the higher probability of network disruption but positively through the support network of partners both within Japan and overseas, resulting in an overall positive effect. Of relevance for our paper are recent papers by Uchida et al., 2014, Uchida et al., 2015 who examine the relationship between the Tohoko earthquake and bankruptcy. The most important finding is that they find that damaged firms inside the earthquake region are less likely to go bankrupt than undamaged firms indicating (counter-intuitively) that earthquake damage lowers the probability of firm exit. They also find a lower probability of bankruptcy for firms inside the earthquake region compared to those outside the region. They argue, but do not show, that this reduction in plant failure was due to the public and private aid provided to firms in the area of the earthquake. Finally, also for the Great East Japan Earthquake, Wakasugi and Tanaka (Wakasugi and Tanaka, 2013) examine the determinants of plant stoppages, including descriptive evidence of how stoppages vary across plants.5
However, despite the increase in the number of plant-level studies to the best of our knowledge there has been almost no research that examines the impact of pre-disaster planning and post-disaster aid on plant recovery. The contribution of this paper is thus as follows. First, we complement the previous research of Todo et al. (2013) and Cole et al. (2013) to provide one of the first studies of the impact of a natural disaster on plant-level performance. Second, as far as we know we are the first to examine the extent to which pre-disaster planning by plants can affect post-disaster plant performance by using a unique plant-level survey that enables us to distinguish between earthquake damage and tsunami damage and to examine the extent to which a variety of pre-disaster policies benefit post-disaster economic performance. Policies included in our analysis are: arranging alternative transportation methods in the event of an earthquake; arranging alternative production arrangements with other firms to enable current orders to be fulfilled; possessing a business continuity plan (BCP); and deliberately diversifying parts suppliers to minimise potential disruption to the supply chain. Finally, we are one of the first studies to examine the effectiveness of post-disaster aid on post-disaster plant performance and to distinguish between different types of aid.6
To briefly summarise out results, we find that both earthquake and tsunami damage affected the duration for which operations were disrupted following the earthquake, but that only tsunami damage was a statistically significant and negative determinant of sales for the 6 months following the earthquake. In terms of pre-disaster planning, we find that possessing a transport substitution policy, a BCP and a production substitution policy that allows other firms to fulfil existing orders are beneficial for post-disaster performance in terms of sales. In terms of post-disaster aid, we find that plants that received aid from banks and from trading partners experienced higher post-earthquake sales than those that did not. However, other forms of aid were found to have no statistically significant effect on post-earthquake sales. Finally, similarly to Todo et al. (Todo et al., 2015), we find that having overseas affiliates can have a beneficial effect on post-quake performance.
The remainder of the paper is structured as follows. Section 2 discusses and examines the data used in this study and Section 3 outlines our methodology. Section 4 provides our econometric results and Section 5 concludes.
Section snippets
Data
The main source of data for our analysis is the plant-level survey “Questionnaire Survey on Damages to Companies Caused by the Great East Japan Earthquake” conducted by the Research Institute of Economy, Trade and Industry (RIETI).7 The survey targeted a total
Methodology
In order to examine the effect of pre-disaster planning and post-disaster aid on plants’ post-disaster performance we begin by estimating Eq. (1):where STOPi is the number of days for which plant-level operations stopped as a result of the earthquake and/or tsunami for each plant i, PLANi is a vector of variables capturing pre-disaster planning, Di is a vector of variables capturing earthquake and tsunami damage and Xi is a vector of other control variables. Since
Results
Table 5 provides estimates of the number of days of stopped operations from Eq. (1). As expected, models (1)–(7) clearly show that earthquake damage and tsunami damage are positive and significant determinants of the number of days of stopped operations. The numbers reported in Table 6 are incident rate ratios. Taking model (1) as an example, this means that if Quake Damage increased by 1 unit, the number of days of stopped operations would increase by a factor of 1.47. The equivalent figure
Conclusions
In this paper we have examined the impact of pre-disaster planning and post-disaster aid on the performance of plants that were in the region affected by the Great East Japan Earthquake in 2011. Our results show that, unsurprisingly, both the earthquake and the subsequent tsunami had a significant and positive effect on the length of time that firms’ operations ceased, with tsunami damaged plants taking longer to recover. However, when we consider the sales in the six months following the
Acknowledgement
We would like to thank RIETI for their continued support and access to the micro data. This study uses the micro-data of Questionnaire Survey on Damages to Companies Caused by the Great East Japan Earthquake, which conducted by Research Institute of Economy, Trade and Industry (RIETI) and also uses Tokyo Shoko Research (TSR) data. We would like to thank Bihong Huang and Naoyuki Yoshino and participants at the RUSE 2016 conference in Chengdu for useful comments. The usual disclaimer applies.
References (47)
Adaptive governance for resilience in the wake of the 2011 Great East Japan earthquake and tsunami
Habitat Int.
(2016)- et al.
Can natural disasters have positive consequences? Investigating the role of embodies technical change
Ecol. Econ.
(2009) The macroeconomic consequences of disasters
J. Dev. Econ.
(2009)The economic growth impact of natural disasters in developing countries: evidence from Hurricane strikes in central American and Caribbean regions
J. Dev. Econ.
(2012)The impacts of natural disasters on plants' growth: evidence from the great Hanshin-Awaji (Kobe) earthquake
Reg. Sci. Urban Econ.
(2015)- E. Cavallo, I. Noy, The Economics of Natural Disasters – A Survey, IDB Working Paper 124,...
- et al.
Supply chain disruptions: evidence from the Great East Japan earthquake
SSRN
(2016) Transportation planning for disasters: an accessibility approach
Environ. Plan. A
(2003)- et al.
Urban Growth and Long-Term Changes in Natural Hazard Risk
Environ. Plan. A
(2012) - et al.
Study on business interruption on the manufacturing industry by the Great East Japan earthquake, (inJapanese)
Infrastructure Plan. Manag.
(2013)
Natural Disasters and Plant Survival: the impact of the Kobe earthquake
Natural disasters as creative destruction? Evidence from developing countries
Econ. Inq.
Rebounding from disruptive events: business recovery following the Northridge earthquake
Sociol. Spectr.
Enterprise recovery following natural disasters
Econ. J.
Nihon Seisaku Kinyu Kouko niyoru Chusho Kigyou muke Sinsaikanren Yushi no Keizaikouka Sokutei nikansuru ichi Kousatsu (Research note on lending programs for small business enterprises in Great East Japan earthquake by development Bank of Japan)
Nihon Seisaku Kinyu Koko Ronshu
Firm-network characteristics and economic robustness to natural disasters
J. Econ. Dyn. Control
Aftermath of the 3.11 disaster: an analytical evaluation using official statistics (in Japanese)
Econ. Soc. Res. Inst. Discuss. Pap.
Cited by (26)
Political risk and corporate international supply chain
2023, Journal of International Money and FinanceMethods and lessons for business resilience and recovery surveys
2023, International Journal of Disaster Risk ReductionBusiness recovery from disasters: Lessons from natural hazards and the COVID-19 pandemic
2022, International Journal of Disaster Risk ReductionCitation Excerpt :With respect to funding type, findings are mixed for loan-based assistance, despite its use in several countries [80–82]. Research has found loans to have both positive impacts and negative impacts on recovery after disasters [27,83,84]. Negative findings have been hypothesized to be a result of the additional debt placed on already heavily indebted businesses [27].
Transportation Engineering: Theory, Practice, and Modeling
2022, Transportation Engineering: Theory, Practice, and ModelingEconomic consequences of follow-up disasters: Lessons from the 2011 Great East Japan Earthquake
2021, Energy EconomicsCitation Excerpt :Immediate government aid and reconstruction helped to normalise a large part of the hit area. A majority of business opened within two weeks (Todo et al., 2015; Cole et al., 2017). Seaports located directly in the line of the tsunami took much longer to recover, which hampered international trade links (Ono et al., 2016; Hamano and Vermeulen, 2020).
Is the Workers’ Health and Safety Scenario Different in Post-Disaster Reconstruction from Conventional Construction? A Case Study in Bhaktapur, Nepal
2021, International Journal of Disaster Risk Reduction