Does Natural Disaster Increase Start-ups?
An Empirical Analysis on the Great East-Japan Earthquake
Hiroyuki Okamuro and Tomofumi Sarugaku
Previous studies suggest that business start-ups increase after natural disaster due to psy- chological, networking, and economic reasons. Yet, no empirical estimations have been done on this issue, considering causal inference. Thus, focusing on the Great East-Japan Earth- quake, we investigate causal impacts of natural disaster on local start-up ratio, by employing standard econometric techniques. Using municipality data from public census, we construct a panel data set with four periods before and after the Great East-Japan Earthquake(2001─ 2004, 2006─2009, 2012─2014 and 2014─2016)and 1,734 municipalities in Japan. We employ fixed-effect panel estimation with DID approach to consider causality, where the treatment group comprises the municipalities officially designated as Special Disaster Area(or speci- fied as Tsunami Area)and the control group covers all other municipalities. Specifically, we distinguish between the effects on gross and net start-up ratio. We also consider the effects on average start-up size measured as the average number of employees. The estimation re- sults show that this disaster had a positive and significant impact on the start-up ratio in the Special Disaster Area, which is even stronger in the Tsunami Area. We also find that the impact is especially evident in the sectors that are essential for the reconstruction or di- rectly related to consumer service. We also confirm these positive effects for independent start-ups. We find that the average size of start-ups is not significantly affected by this earthquake. Finally, the results show that the positive and significant effects of(the recov- ery from)the natural disaster on start-up ratio during 2012─14 become weaker or even sta- tistically insignificant during 2014─16, suggesting that the effects of the disaster may not persist.
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