What Happened to Kobe? A Reassessment of the Impact of the 1995 Earthquake in Japan

The conventional wisdom that the devastation wrought by the 1995 Kobe (Great Hanshin-Awaji) earthquake did not have any long-term impact on the Japanese economy, or much impact on Kobe itself, is wrong. We reevaluate 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 a decade after the event. Using the methodology developed by Abadie et al. (Journal of the American Statistical Association, 2010), we construct counterfactual 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 13 years after the quake. GDP per capita for 2008 was ¥400,000 per person lower (12% 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 high-income country and with the backing of a deep-pocketed fiscal authority.