Looking Toward Japan

    A U of A researcher looks at the economic after-shocks of the recent Japan earthquake

    By Hayley Dunning on March 30, 2011

    Map of Japan showing the epicentre of the 2011 earthquake.

    A U of A researcher looks at the economic after-shocks of the recent Japan earthquake

    The earthquake and subsequent tsunami that struck Japan’s northeast region on March 11 left terrible destruction in its wake. To date, over 10,000 people have been confirmed dead, and the financial costs to the country are predicted to exceed $309 billion. Although the economic effects of such a catastrophe are hard to gauge, research conducted by U of A business and economics professor Richard Beason on the last major earthquake to strike Japan sheds some light—and hope—on the situation.

    In 1995, a magnitude 6.8 quake struck Japan about 20 km from the busy port city of Kobe, and Beason, who has worked for several economic firms in Japan and researches the country’s corporate and government relationships, happened to be working in the country at the time. Japan had recently suffered a major economic collapse, much like the global economic recession of 2008, and economists wondered if the country could possibly recover from a second severe blow.

    “Things were starting to get back to normal, then you had the earthquake in Kobe, and it just knocked everything off,” says Beason. He sees a similar trajectory for the country after the most recent disaster.

    Richard Beason

    Richard Beason

    While the two events are incomparable in terms of scale, the country’s northeast Tōhoku region—where the bulk of the damage was concentrated—is much less productive than the Kobe area was and, thus, will have a lesser impact on the Japanese economy as a whole. Beason predicts this catastrophe will push Japan into the red—but only for a few years, roughly the same amount of time it took the country to bounce back after the Kobe earthquake.

    “Japan [has] a 250-percent debt ratio to Gross Domestic Product, and this comes at a perfectly bad time,” says Beason. “This is exactly why countries shouldn’t run up massive debt, because if you have any kind of cataclysmic event, how are you going to fund it? This will be a further heaping of debt on to the pile.”

    Certainly there is no accounting for the tragic loss of human life; however, the overall loss of economic activity will be balanced in part by the boom to the construction industry, says Beason. But the Tōhoku region itself will probably take longer to recover than the rest of Japan since its primary activities are tourism and small-parts manufacturing.

    And although the world’s press is currently focused on the potential for a nuclear crisis at the Fukushima reactor, Beason thinks the Japanese are too rational to ditch their nuclear power program and are more likely to be already looking ahead at long-term investment in higher sea walls and nuclear engineering solutions.

    “It’s going to have long-term economic impacts, but Japan does have a resilience about it,” says Beason. “And, except for the massive loss of human life, that site will recover relatively quickly. They are a stoic, hardworking people.”