lobalization has increased the importance of international trade in the world’s economy. As a result, large disasters, especially in countries with a significant presence in the international trade and global supply chain, can disturb the global economy (1). In other words, “when local disasters occur in globally integrated economies, the impacts ripple through regional and global supply chains causing indirect losses to businesses on the other side of the globe” (2
). History showed that large-scale disasters could even push the world's economy into an irreversible decay or collapse (3). Mega disasters could cause a decrease in production through direct (human capital, buildings, utility networks, and transportation infrastructure such as roads, ports, and rails) and indirect losses (4, 5, 6), which in turn could reduce the export by the impacted country. Depending on the nature of the reduced products (i.e., raw material such as oil, intermediate goods, or final products), disasters can disrupt and impact the international supply chain and markets. With regard to the increasing share of tourism in the global economy, service exports may also be negatively influenced by disasters (7). Moreover, disasters may have an impact on the global economy through expectation modifications. Considering the possible supply chain disruptions and risks involved, innovative companies try to identify disaster hot spots in their supply chains and seek alternative options to reduce their vulnerability (2).
In today’s interconnected global economy, indirect impacts of large disaster events may be dispersed among many countries. Depending on the nature of trade, other countries may suffer economic losses due to supply chain disruptions or possibly gain profit from increasing exports to the disrupted country (8).
This paper assessed the extent to which the changes in post-disaster exports of Japan could be attributed to the disaster. The export changes in Japan and the world were examined from 2010 to 2012 using a modified version of shift-share analysis. The remaining parts of this paper are organized as follows: Section two describes the Great East Japan Earthquake and Tsunami case study while section three discusses the original shift-share methodology. Main findings are presented in section four followed by discussions and conclusions in section five and six.
Japan Case Study: March 2011 Great East Japan Earthquake and Tsunami
On March 11, 2011, the strongest earthquake in Japan’s recorded history struck 40 miles off the east coast of Japan and led to over 15,000 deaths. The 9.0 magnitude Great East Japan earthquake also damaged four nuclear plants. In particular, the Tokyo Electric Power's Fukushima Daiichi (Fukushima I) nuclear plant on the nation’s east coast was decimated. The disaster led to the failure of cooling systems at the Fukushima I nuclear plant and the declaration of Japan's first-ever nuclear emergency. Uncontrolled off-site releases of radioactivity forced the evacuation of over 150,000 residents within 20 km (12 miles) of the nuclear plant; many people are still unable or unwilling to return. The complete cleanup of the nuclear plant is expected to take 40 years and financial compensation to the survivors requires significant resources. In the aftermath of the disaster, the government ordered decommissioning of damaged reactors, a gradual nationwide shut down of nuclear operations and implementation of more rigorous safety standards. Japan’s nuclear power capacity was completely shut down in 2013 and reactors started going back online only in August 2015.
Nuclear Power Plant Closures
Japan’s energy policy has been dominated by the Great East Japan earthquake and the Fukushima Daiichi crisis. Prior to the March 2011 triple disasters (earthquake, tsunami, and nuclear crisis), Japan was the world's third-biggest user of atomic energy and generated nearly a third of its electrical power from nuclear reactors. In 2009, Japan pledged to increase nuclear power’s share in electricity supply from 30 to 50 percent in part to reduce its greenhouse gas (GHG) emissions by 25 percent from 1990 to 2020 at the 15th Conference of the Parties (COP15)(9).
Nuclear-related accidents and nuclear cover-ups dating back several decades contributed to growth of anti-nuclear protests, pressure to close plants, and an erosion in public trust of the nuclear power industry in Japan. Problems in stabilizing the triple reactor meltdowns at Fukushima Daiichi nuclear plant served as a tipping point in public opposition against nuclear power and greater government scrutiny of Japan’s safety culture in the nuclear industry. After the 2011 Fukushima Daiichi nuclear accident, the government of Japan took a number of decisive actions to gradually shut down nuclear operations in the light of hardening attitudes against nuclear energy. Specifically, on May 6, 2011, Prime Minister Naoto Kan ordered closing of the Hamaoka Nuclear Power Plant due to the known seismic risks. On May 5, 2012 Japan shut down or suspended (for maintenance and/or safety inspections) its last 50 working nuclear reactors (Tomari-3) leaving the nation completely without nuclear-produced electrical power for the first time since 1970 (10). In March 2016, a court in Japan ordered the Takahama Nuclear Power Plant, one of the two nuclear power plants operating in the country, to shut down (after being online for only two months after the atomic power freeze) due to insufficient safety measures (11).
Although nuclear power is viewed by many Japanese leaders as critical to support Japan’s economic growth and its lack slows Japan to lower-cost countries, the government of Japan is faced with major public opposition to reactivate the plants. Despite new nuclear safety standards introduced in 2013, Japan’s government and its power companies have struggled to restart the nuclear industry since it was completely closed in 2013. Only a handful of Japan’s 42 operable nuclear reactors have met the new safety rules and lawsuits have made it difficult to restart them.
Japan is the world’s fifth largest electricity user. The idling of Japan’s nuclear reactors following the Great East Japan earthquake led to a 30 percent gap in Japan’s electricity supply (9), particularly in Western Japan. While conservation measures and additional renewable electricity capacity (since 2012) have helped to reduce this gap, Japan was ranked as the second largest net importer of fossil fuels in the world in 2012, trailing only China. Specifically, from 2010 to 2013 Japan’s energy dependence on imports rose to 94 percent (from 80% in 2010) and annual carbon dioxide emissions from power generation increased by 25 percent during the same period (more than 110 million tons) (9).
Since the nuclear shutdown, electricity prices have increased by 16 percent for households and 25 percent for industry, because of increased imports of expensive fossil fuels; liquefied natural gas (LNG), oil, and then coal from 2013. Imports are likely to rise in an unsustainable fashion, although a decline in oil price has recently reduced some costs (9). The Japanese Finance Ministry recently reported that additional fuel imports contributed significantly to a record $109 billion dollar trade deficit in 2014. In order to compensate for the post-Fukushima loss of its nuclear power plants, Japan's utilities have increased use of non-nuclear energy infrastructure, including gas and oil-fired power plants that produce more expensive electricity. With a budget deficit of 7.7 percent of gross domestic product in 2014 (compared with 2.8 percent in the U.S.), Japan continues to be weighed down by post-Fukushima energy bills.
The Global Reach of Japan’s Economy
The earthquake and tsunami of March 11, 2011 and the ensuring nuclear meltdown are now examined with a particular focus on how the disaster impacted Japanese exports and the global economy. With estimated direct damages of over US$211 billion, the Great Eastern Japan earthquake of 2011 has been the costliest disaster in the history of Japan. Fisheries and agriculture were the most impacted sectors. Due to initial reports about possible radioactivity in Japan’s food exports, many countries including USA, Canada, European :union:, New Zealand, Australia, India, and other South East Asian nations increased their surveillance of possible contamination in food imports from Japan (12).
Although this disaster occurred in an area with a lower share in the national and global economy by volumes and values (7 to 8 percent of GDP), many Japanese and non-Japanese firms outside the affected area were impacted by the ripple effects from the disaster. a halt in industrial production by companies in the disaster zone led to chaos in supply chains throughout Japan and around the world (13). For example, supply shocks disrupted the key production plants located in the affected disaster region such as Sony, NEC, Toyota, Fujitsu, and Renesas Electronics Corporation, which suffered from an estimated loss of US$615 million. In particular, Renesas, the world’s largest custom manufacturer of microchips for the automobile industry controlled about 40 percent of the world's share of microcontrollers used for automobiles (14). Other products impacted by supply chain disruptions on a massive scale included rubber for tires, paint pigments, condenser electrolytes for silicon semiconductor wafers, and thyroid hormone preparation (13).
It has been estimated that about “90 percent of the output loss in Japan due to the earthquake resulted from indirect effects through the disruption of supply chains rather than the direct effects of damage caused by the disaster” (15). Major auto manufacturing companies including Toyota and Honda stopped or reduced their production in industrial plants due to disruptions in the supply of parts and components originating in the disaster impacted area (16). Toyota lost US$1.2 billion in product revenue owing to shortage of parts that caused cascading supply chain impacts around the world, including 150,000 fewer Toyota automobiles manufactured in the US. Toyota also experienced production stoppages at five plants in the United Kingdom and reductions in manufacturing around the world, including a 70 percent decline in India and 50 percent decrease in China (Asano 2012). According to Ye and Abe (17), automobile and electrical component production in Japan declined by 48 percent and 8 percent, respectively following the disaster and this did not stop in Japan’s borders. Automobile production also fell in by 20 percent in Thailand by 18 percent in the Philippines and by 6 percent in Indonesia. Similarly, electrical component production fell in Philippines (by 18 percent) and in Malaysia (by 8 percent). Hence, the economic impacts of the disaster extended far beyond the damaged region, including significant losses in gross domestic product (GDP), in manufacturing (due to supply-chain disruptions), in retail trade, and tourism (due to consumption decreases and radiation fears) (18). Hence, although the disaster impacted largely a vast rural area, the overall economic impacts of the disaster extended far beyond the damaged region and resulted in more severe disaster losses than the 1995 Great Hanshin (Kobe) earthquake (19).
A large body of economic scholarship focuses on the impacts of large disasters on international economy. A number of studies examined the March 11, 2011 earthquake and tsunami. For example, MacKenzie et al. (8) used multiregional input-output model to examine the impacts of this disaster on not only the domestic Japanese economy, but also the international economy. It was shown that the supply chain disruptions and the unavailability of Japanese products decreased both domestic and international production. China was mostly affected through these linkages and slowdowns in European and North American manufacturing were observed as early as Spring 2011. Finally, Belke (20) examined the short-term shock of this disaster on international financial markets. The studies also mentioned several confounding international economic issues that may contributed to the production and export declines.
Materials and Methods
Shift-share analysis is normally used to analyze the differences between regional and national/global growth rates. Macroeconomic variables such as export, employment, and production can be used in the analysis. Shift-share analysis was initially used in regional studies (21, 22, 23). Different versions of shift-share models have been proposed and used by researchers. Esteban-Marquillas (24) applied a shift-share model that uses homothetic sectorial employment by region. It allows for the identification of additional allocation effects. Arcelus (25) adopted a model that includes a specific regional effect and a sectorial regional effect, reflecting the amount of growth derived from the regional industry mix. McDonough and Sihag (26) proposed a different shift-share version by including multiple bases or relative weights for variables used in computations.
Shift-share has been used in the international trade studies (27, 28, 29, 30). Chiang (30) attested that shift-share analysis provided reasonable results in todays globalized economy. Shift-share method allows incorporation of international trade into the regional or national economy and provides valuable economic insights into trade and fiscal policies (31).
The shift-share was also used in disaster studies (32). Chang (33) applied shift share method after Kobe earthquake in Japan to understand the role of transportation systems in disaster recovery and the long-term economic effects of earthquakes. She concluded that the city of Kobe lost its competitiveness after the earthquake. Bricongne et al. (34) examined the impacts of the recent global economic crisis (2008–2009) on the French firms using shift-share method. They found that most of the reduction in trade was attributed to the unprecedented demand shock and product characteristics. This crisis impacted smaller exporters more than larger ones as they were forced to reduce the range of destinations served or cease their exports. Mehregan et al. (35) applied shift-share method to assess the potential long-term impacts of earthquake disaster on employment using the December 2003 Bam earthquake in Iran.
Shift-Share Analysis
Shift-share analysis is traditionally used for comparing regional changes (e.g. Tohoku region’s exports) with national changes (e.g. Japan’s total exports). With roots in regional economic analysis, shift-share analysis has expanded to international trade studies and to examine trade issues at a global scale. In this manuscript we presented a new methodology that compared changes in the national economy of Japan with global changes. While disaster impacts in developed countries are often concentrated regionally after the 2011 Great East Japan Earthquake and nuclear meltdown, Japan stopped the operations of all nuclear power plants. As previously discussed in Section 2, this negatively impacted all Japanese producers throughout the country since they faced the threat of blackouts, power reductions, and more expensive energy.
In traditional shift-share analysis, a particular region is compared to a benchmark (usually a larger entity such as a nation) in order to extract how the smaller region is different from the larger benchmark, namely the average of a larger entity. In this paper, the benchmark is set to the total of global exports and Japan’s exports are compared with the average tendency of the world exports. Then, the change in Japan’s exports is decomposed into a universal component (i.e. as the total of world exports grows/declines, a part of Japan’s export grows/declines accordingly), the industry mix (on average over the world, some industries grows/declines faster than others and Japan’s same industries are likely to grow/decline accordingly), and the competitive component (the residual of Japan’s export changes), which is defined as follows:
1) Competitive component = Japan’s total export changes – universal component – industry mix component
Accordingly, in the shift-share analysis, the competitive component is the residual, which includes anything other than the average changes with the benchmark and industry specific changes. Accordingly, it can encompass many things, such as changes from the currency exchange rate change (Japanese Yen to foreign currency), from the domestic interest rate change to other domestic macroeconomic changes in Japan and also from the changes in other countries’ demand to Japan (export demand from other countries). In the case of Japan, we argue that a significant portion of the competitive component can be attributed to the disaster impact.
Shift-share method has evolved and its different formulations have been proposed (36). In this paper, we apply Lonsdale and Archer’s version of the method (37), taking into consideration the international trade. In this formulation, we suppose that changes in export, , for industry i in country j (Japan in this study) during the study period (2010 to 2012) can be divided into universal component ( ), industry mix component ( ), and competitive component ( ):
2) = + +
The (universal component for a section) states that the expected change for that sector in Japan is the same as the total export change in the entire sectors in the country.
Where, the base-year (2010) is export in sector i in country j, and is the growth rate between the base year and the end-of-period year (2012).
3) = *
The industry mix component ( ) measures the changes that can be attributed to the global performance of a sector. The industry mix component is the expected export change if a sector has changed at the same rate as that sector internationally, minus the universal or global component. The industry mix component is calculated as:
4) = * (
Where, is the growth rate for sector i for world as a whole. The industry mix component accounts for intersectional variation in export growth.
The competitive component, , displays export changes due to an industry growing at a distinct rate in Japan, relative to that section internationally. Competitive components for different sectors show the economic activities, for which Japan had a competitive advantage during the study period (2010 to 2012). The competitive component is calculated as:
5) * (
Where, represents the rate of change for sector i in region j (Japan) during the study period.
Data
Two datasets were used in this study. The first includes Japan’s exports and the other contains the world’s exports. The World Trade Organization (38)’s online database constitutes the main data source. Since the study focus was on examining the growth of various sectors of Japan, the data collected on total exports were categorized into seventeen sectors as shown in
Table 1.
