A Multiplier Analysis of the Impact of a Negative Supply Shock Caused by the Great East Japan Earthquake and Subsequent Rebuilding Policies: Utilizing the two-regional SAM

The purpose of this paper is to examine how the March 11, 2011 earthquake and tsunami impacted the economies of the disaster-affected and other areas of Japan. Using a multiplier analysis, we measured the impacts of each of the following events: a drastic decrease in exports from the affected region, tsunami-caused damage to agriculture and fisheries, and the transfer of income to the affected region for reconstruction. Based on the assumption that the drastic decrease in exports continued for 12 months, the industrial production in the affected region is estimated to have decreased by 6.5 trillion yen compared to the corresponding period a year earlier, reducing per-household income by 606,000 yen. Meanwhile, the output value of the agricultural and fisheries sectors in the region is estimated to have decreased by 0.73%, or approximately 0.5 trillion yen, as a result of tsunami-caused damage. Finally, we analyzed how the impact of income transfer or financial assistance to the affected region would differ depending on what source of revenue to tap into, with an eye on finding the most efficient way to proceed with the reconstruction in terms of maximizing economic ripple effects on the affected region and minimizing the negative impact on the other areas. Our analysis found that allocating a portion of property income, such as interest and dividend income, is preferable to transferring funds in the form of government expenditures or allocating a portion of revenue from domestic indirect taxes, not only having a positive impact on the affected region but also keeping the negative impact on the rest of the country to a minimum.