What happened to Kobe? A reassessment of the impact of the 1995 earthquake in Japan

Abstract

The received wisdom is that the devastation wrought by the 1995 Kobe earthquake did not have any long‐term impact on the Japanese economy, nor much impact on Kobe itself. We re‐evaluate the evidence using a new methodology, synthetic control, and find a persistent and still continuing adverse impact of the quake on the economy of Kobe more than 15 years after the event. Using the methodology developed by Abadie et al. (2010), we construct counter‐factual dynamics for the Kobe economy. We identify a decline in per capita GDP that is attributable to the quake and is persistent, long‐term, and clearly observable even 15 years after the quake. GDP per capita in 2007 was 500,000 yen per person lower (13% decrease) than it would have been had the earthquake not occurred. Importantly, this adverse long‐term impact is identified in a wealthy region of a developed country, and with the backing of a deeppocketed fiscal authority.