Natural Disasters and Plant Survival: The impact of the Kobe earthquake

This paper examines the impact of the 1995 Kobe earthquake on the survival of manufacturing plants and their post-earthquake economic performance. The evidence from macroeconomic studies of the impact of natural disasters on economic growth is mixed with some papers finding a small negative effect while others often finding a positive effect. However, the local effects of disasters are often overlooked. In this paper, we undertake a detailed study of the local effects of the Kobe earthquake. We employ a micro-econometric approach based on carefully geo-coded data on initial plant locations and a building-level survey to measure accurately the damage to the buildings where the plants were located. Including plant and building characteristics as well as district-level variables to control for spatial dependencies, our results show that the greater the level of damage a plant experienced, the lower was its probability of survival. Interestingly, this effect persists for some years, although it diminished over time. Further fixed-effects panel analysis shows evidence of falling total employment and value added associated with earthquake damage. However, we find some evidence of creative destruction with the average plant experiencing a short-run increase in productivity although this advantage disappeared over time.