We will use March 2011 Took as a case duty on the impact of natural disasters on Japan GAP. Initial Impact of Natural Disaster Personal Consumption – The immediate aftermath of the earthquake and tsunami is only natural for consumption to decrease due to stores being closed or destroyed in the disaster area and reduced income from the disruption in work. Exports – Japan’s economy is largely export-based, and the immediate aftermath of March 2011 earthquake, manufacturing plants have been forced to shut down, Japan’s GAP loss is estimated at 0. 7 percent to 3. 0 percent.
Often, however, the quantitative impact of this first round is small, articulacy when the disaster happens to Japan whom is the third largest economy in the world. Tourism – The devastating earthquake and tsunami, a growing death toll and search for missing persons, and an evolving nuclear radiation threat are causing many travelers to cancel trips to Japan. International arrivals went down by 50% in March and 62% in April. Inbound leisure tourism fall by an estimated 90% in the two months, according to Japan Tourism Agency, with domestic travel down almost by 20% over the period.
The disruption to demand was felt throughout the country and not just in the north eastern egging that was directly affected by the earthquake and tsunami. This decrease the consumption of domestically produced goods and services and bring down the GAP. Short-term Impact of Natural Disaster Government Spending -? Japan government has pledged to rebuild the destroyed housing and national infrastructure by announcing the disaster relief package of approximate $50 billion. This increase in government spending will likely boost the economy.
Insurance funding the cost of rebuilding amount to approximate $33 billion. Another $10 million will come from Foreign Aid and donations. The rest of $210 billion of the cost of repairs will have to come from the savings of the Japanese households or companies. Repairing buildings, cleaning up, rebuilding all require paid services, building supplies, labor, etc. These transactions will show up in GAP measures in the months/quarters after disaster as a slight increase in total GAP.
In short term, a natural disaster there comes first a short decrease in growth in the aftermath of the disaster followed by a surge in activity that translates in more GAP growth prior to the disaster. GAP measures economic production by counting the dollar value of all orientations where something new is produced and sold. Some economist will comment that it is a deceptive measure in total GAP after a disaster because the Japan is not really significantly better off. They are just getting back to the condition before the disaster.
GAP counts the fixing but not the damage done. The mistaken idea that disaster are good for the economy is what economists call the Fallacy of the Broken Window. Long-term Impact of Natural Disaster The growth of GAP might look fine after a natural disaster, but if it is only due to the local government borrowing a lot of money in order to rebuild what as damaged immediately, in the long run, they might postpone the real cost, the repayment of the loan, to future generations.
This large sum of borrowed money might hamper the country when dealing with future economic fluctuations, or might cause the country to not be able to invest in otherwise good infrastructure projects. What we know about the long-term effects of natural disasters is scant and inconclusive. The most recent attempts to evaluate the long-running impact of disasters on per capita income suggest that there is no evidence of any such adverse effect. Conclusion If adequate financing and national resources exists, then we rarely find a national income impact on GAP or the economy lasting beyond perhaps a 6 months to a year.
The smaller the economy, the greater the potential for longer lasting damage and even a failure to rebuild at all. Haiti, for example, which was an extremely poor and badly managed economy prior to the hurricane, and whose weak economic base was severely damaged. Despite a substantial international aid response, Haiti has not recovered. Wait’s economy has shrunk more than eight per cent since the 01 0 earthquake, and much of the country remains in rubble.