"Impact of Natural Disasters on Industrial Agglomeration: A Case of the 1923 Great Kanto Earthquake"

One of the main implications of the New Economic Geography, developed since the 1990s, is that a temporary shock can create a persistent impact on the geographic distribution of economic activities because of multiple equilibria. This paper investigates the long-run impact of a temporary shock on the geographic distribution of industries in Tokyo Prefecture, Japan, using the Great Kanto Earthquake in 1923 as a natural experiment. It is revealed that the temporary shock from the Great Kanto Earthquake was basically dissipated by 1936, just before the full-scale war with China broke out. On the other hand, through industry-level investigation, it is found that with respect to the machinery and metal industry, the impact was persistent and remained even in 1936. These findings suggest the importance of the industrial structure and transaction networks within industry in the mechanism determining geographic distribution of industries.