We developed a dynamic spatial computable general equilibrium （CGE） model to investigate the regional economic impact of earthquakes. The model, representing a decentralized economy with utility-maximizing consumers and value-maximizing firms in a dynamic context, embodies both the spatial interactions among regions and the dynamics of regional investments. In this numerical simulation model, representing an inter-regional inter-sectoral economy, Japan is subdivided into 47 regions, all of which are connected by transportation networks. The model is calibrated for the regional economy in Japan.
In the model, the world is subdivided into regions, throughout which are general industries, transportation industries and households. The economy is endowed with the primary factors of labor and capital. Labor is mobile across industries but not regions, and capital is immobile across industries and regions. Goods and factor prices are determined in perfectly competitive regional markets. The commodity trade between regions in a country generates demand for transportation services, and unit transportation costs are endogenous. Commodities are perfect substitutes （i.e., trade between regions is calculated by means of trade coefficients）. The movement of commodities among regions is enabled by road, rail, sea and air transportation networks, and the modal share is stipulated. The model is solved for a rational expectation equilibrium with assumptions of perfect competition and foresight. However, we assume that firms place priority on the investment-savings balance, so the level of investment is determined by a firm’s optimizing behavior.
In this paper, the economic impact of large-scale earthquakes is evaluated using our dynamic spatial CGE model. A steady-state solution is derived as a base case. Through numerical simulations, the economic impact of earthquakes in the Nankai Trough Region and Tokyo Metropolitan Area are assessed using hypothetical scenarios. Two cases （i.e., unpredicted and predicted occurrences） are assumed, and the respective solutions, characterized as non-steady state, are compared with the base case. We estimated the dynamic and spatial impacts, that is, the industrial investments and commodity flow between regions before and after the earthquakes. The results confirmed the importance of investments aimed at protecting the regional economy in the event of an earthquake disaster.
JEL Classifications: Q54, R11, R13, R15