The impact of production and infrastructure shocks

This paper develops a methodology to predict the wider interregional and interindustry economic impacts of major catastrophes, such as earthquakes and tsunamis. Short-run impacts are determined by the attempts of economic actors to continue their familiar activities and established trade patterns, as closely as possible. We propose to model these behavioural reactions by minimizing the information gain between the pre- and the post-catastrophe pattern of economic transactions in the economy at hand. The basic non-linear program reproduces the short-run equilibrium described by the base year interregional input-output table (IRIOT) of a hypothetical open, two regions, two industries economy. The proposed methodology is further tested by means of a comparison of the base scenario with two scenarios with regional production shocks and two scenarios with interregional infrastructure shocks. We conclude that the outcomes are reasonable and become more plausible when the positive foreign trade balance limitation is dropped.