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This bi-weekly newsletter will keep you updated with the recent columns, event information and research results by RIETI fellows and other leading economists in Japan and around the world. In this edition, we are featuring topics related to recovery from earthquake disasters. On January 1, 2024, a powerful earthquake took place with its epicenter close to the Noto Peninsula in north-central Japan, claiming many lives. RIETI Fellow Takahiro Yamada looks back at the situation following the Great East Japan Earthquake which occurred in 2011 to review how the devastated areas have recovered from the perspective of economics and spatial information science. Yamada suggests some measures for achieving recovery. We hope you will enjoy it. If you have any feedback, we would love to hear from you ([email protected]). Editors of RIETI Report (Facebook: @en.RIETI / X (formerly Twitter): @RIETIenglish / URL: https://www.rieti.go.jp/en/) This month's featured article Recovery from Earthquake Disasters: Turning devastation into creative destruction YAMADA TakahiroFellow (Policy Economist), RIETI Introduction On the first day of 2024, a powerful, 7.6 magnitude earthquake took place with its epicenter close to the Noto Peninsula in north-central Japan, claiming many lives. Relocated people are still living in shelter facilities with the bare minimum protection against the winter cold, while emergency rescue and relief efforts are ongoing. To help pave the way for recovery from the Noto Peninsula Earthquake, I would like to once again look back at the situation following the Great East Japan Earthquake, which occurred 13 years ago, review how the areas devastated by that earthquake have recovered from the perspective of economics and spatial information science, and discuss the challenges that remain unresolved and the outlook on the future of the devastated areas. While the loss of lives caused by the disaster cannot be undone and the grief of bereaved relatives is unimaginable, I would like to step back and consider measures to achieve recovery in the true sense of the word. How Economics Understands Post-Disaster Economic Dynamics A consensus has been reached among economists that the benefits of national and regional economic growth trickle down throughout society, contributing to the improvement of overall living standards (e.g., Dollar and Kraay, 2002; Dollar, Kleineberg and Kraay, 2016; Ravallion, 1995). First,let us consider what economic path disaster-ridden areas should take on the assumption that economic growth is essential to the improvement of living standards. A country's (or region's) economic size can be expressed as the equivalent of the sum of human capital, physical capital, and total factor productivity, which indicates its level of technological advancement. Under that equation, even if the economy is hurt by a natural disaster like the Great East Japan Earthquake or war —- that is, if damage is caused to physical and human capital —- the economy will later return to normal as a result of capital re-accumulation as long as the level of technological advancement remains unchanged. That has been the common view among the proponents of neoclassical economic growth theory (e.g., Barro and Sala-i-Martin, 1992). However, due to the dissemination of broad sets of verifiable statistics and the rise of empirical analysis that utilizes the approach of identifying causal effects, the view has emerged that it is important to verify the validity of the results predicted by that growth theory through empirical research. Among the sceptics of neoclassical economic growth theory, one school argues that a post-disaster economy becomes more stagnant compared with the situation before the disaster because of the "poverty trap" (Azariadis and Drazen, 1990; Sachs, 2005; World Bank, 2003), which refers to a lack of economic growth due to continuous low investment in physical and human capital. Another school asserts that post-disaster economies should achieve recovery beyond their pre-disaster levels as a result of increased levels of technological advancement due to greater introduction and more widespread use of innovative investments and knowhow spurred by such destruction (Aghion and Howitt, 1992). In recent years, an increasing number of empirical studies have supported the latter school's theory -- that is, the creative destruction theory -- based on sets of nighttime satellite images of artificial urban lighting (each representing an area of approximately 1 km2), which serve as an indicator of national economic activity because of the strong correlation between the brightness levels of nighttime light and economic activity, in addition to data collected at the macro and microeconomic levels (e.g.,Yamada, 2023; Yamada and Yamada, 2021). To read the full text: https://www.rieti.go.jp/en/columns/a01_0744.html Related articles "100 Years after the Great Kanto Earthquake: Examining post-disaster policy responses" OKAZAKI Tetsuji (Faculty Fellow, RIETI) https://www.rieti.go.jp/en/papers/contribution/okazaki/10.html "Supply-chain vulnerability: An analysis of the impact of earthquakes using micro data" Saito Yukiko (Fellow, RIETI) https://www.rieti.go.jp/en/columns/v01_0011.html "The Impact of the Great Eastern Japan Earthquake on International Trade" TANAKA Ayumu (Fellow, RIETI) https://www.rieti.go.jp/en/columns/a01_0307.html Related papers "The Well-Being of Elderly Survivors after Natural Disasters: Measuring the impact of the Great East Japan Earthquake" SUGANO Saki (Kobe University) https://www.rieti.go.jp/en/publications/summary/15050027.html "The Regional Spillover Effects of the Tohoku Earthquake" Robert DEKLE (University of Southern California) / Eunpyo HONG (University of Southern California) / Wei XIE (University of Southern California) https://www.rieti.go.jp/en/publications/summary/16030066.html "The Effectiveness of Pre-Disaster Planning and Post-Disaster Aid: Examining the impact on plants of the Great East Japan Earthquake" Matthew A. COLE (University of Birmingham) / Robert J R ELLIOTT (University of Birmingham) / OKUBO Toshihiro (Keio University) / Eric STROBL (Ecole Polytechnique) https://www.rieti.go.jp/en/publications/summary/15080003.html Our latest discussion papers "Economic Growth through Basic Research by Firms: A science linkage approach" NIREI Makoto (Faculty Fellow, RIETI) / OIKAWA Koki (Waseda University) / OROKU Masahiro (Recruit Co., Ltd.) https://www.rieti.go.jp/en/publications/summary/24020001.html "SBIR, Startups, and Subsequent Technological Development: Laser diodes in the United States and Japan" SHIMIZU Hiroshi (Waseda University) / WAKUTSU Naohiko (Nagoya City University) https://www.rieti.go.jp/en/publications/summary/24010018.html "Business Restructuring and Corporate Governance: Evidence from survey data" TAKAHASHI Hidetomo (Hosei University) / XU Peng (Hosei University) https://www.rieti.go.jp/en/publications/summary/24010017.html [List of discussion papers] https://www.rieti.go.jp/en/publications/act_dp.html [List of upcoming and past symposiums] https://www.rieti.go.jp/en/events/symposium.html [List of upcoming and past BBL seminars] https://www.rieti.go.jp/en/events/bbl/ * To subscribe, please go to SHANON's website. 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