Past suggests little lasting harm to Japan economy

The Associated Press
Monday, March 21, 2011; 4:57 PM

WASHINGTON -- The Japanese economy has been staggered by an earthquake, a tsunami and a nuclear crisis. But history suggests it will bounce back with no lasting damage.

Wealthier countries with stable government institutions are especially suited to benefit from reconstruction after a natural disaster. So are countries with vast international trade and those that can easily raise money.

Japan falls into all those categories. Its own Kobe area recovered unusually quickly from a 1995 earthquake, for example. And researchers say the May 2008 quake in the Sichuan province of China led to stronger growth that same year.

The World Bank estimates Japan will spend up to five years rebuilding from the March 11 disaster. Reconstruction projects contribute to growth by putting people to work. Economies also benefit as damaged roads, ports, buildings and equipment are replaced. And typically, they are replaced with more efficient structures that help expand the nation's productivity and growth.

"We expect growth in Japan will pick up as reconstruction efforts accelerate," Vikram Nehur, the World Bank's chief economist for East Asia, said Monday.

In the aftermath of the nuclear crisis, Japan also stands to benefit from research and development projects designed to find alternative energy and reduce its dependence on nuclear energy and imported oil, says Reinhard Mechler, an economist at Austria's International Institute for Applied Systems Analysis.

Researchers have documented that natural disasters, for all the death and destruction they leave, cause surprisingly little lasting economic damage.

A report last year by the Inter-American Development Bank found that natural disasters tend to cause long-term economic damage only when they trigger political upheaval. Iran and Nicaragua, for instance, were crippled economically by 1979 revolutions that followed killer earthquakes.

Otherwise, economies usually respond with long-term resilience after natural calamities.

Chinese government researchers have calculated that the Sichuan earthquake and the massive reconstruction effort that followed added to China's sizzling 9.6 percent growth in 2008.

And consider the deadly earthquake that hit Kobe, Japan, in January 1995. Experts predicted the area would need a decade to recover. Instead, Kobe's manufacturers were producing at 98 percent of pre-quake levels within a year and three months, according to a study by the late Purdue University economist George Horwich. About four in five retail shops, including all department stores, were open in a year and a half.

Even with the devastation in Kobe, Japan's economic growth more than doubled from 1994 to 1995.

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