The Economic Impact of Heavy Rains on Supply Chains

16 Pages Posted: 9 Jul 2021

See all articles by Hiroyasu Inoue

Hiroyasu Inoue

University of Hyogo, Graduate School of Information Science; Japan Science and Technology Agency (JST); RIKEN Center for Computational Science

Date Written: June 28, 2021

Abstract

As an effect of global climate change, precipitation is increasing globally, and disasters related to heavy rains such as floods or landslides pose enormous risks of economic losses. Although the destruction of buildings and infrastructure is itself an economic loss, losses can also arise from supply chain disruptions. When firms directly damaged by a disaster reduce their production, their suppliers and customers also need to reduce production because of demand and supply shortages, resulting in substantial indirect effects. This study focuses on the heavy rains in July 2020 in Japan and the ensuing economic damage by using an agent-based model with the actual supply chain relations of 1.6 million firms in Japan. We reveal that daily losses peaked after the heavy rain events with a 50-day delay. This delayed peak means that the shock directly reduced firms' demand and supply and thereby propagated through supply chains. We also reveal that less economically developed areas are less protected from heavy rains and vice versa. Moreover, we reveal that multiple heavy rainfalls in a short period cause more damage to the economy because earlier damage to supply chains remains and interacts with new damage.

Keywords: Heavy rain; Disaster; Supply chain; Propagation; Agent-based model; Simulation

JEL Classification: L14

Suggested Citation

Inoue, Hiroyasu, The Economic Impact of Heavy Rains on Supply Chains (June 28, 2021). Available at SSRN: https://ssrn.com/abstract=3875196 or http://dx.doi.org/10.2139/ssrn.3875196

Hiroyasu Inoue (Contact Author)

University of Hyogo, Graduate School of Information Science ( email )

7-1-28 Minato-jima, Minami-machi
Chuo-ku
Kobe, Hyogo 650-0047
Japan

Japan Science and Technology Agency (JST) ( email )

Kawaguchi Center Building
4-1-8, Honcho, Kawaguchi-shi
Saitama, 332-0012
Japan

RIKEN Center for Computational Science ( email )

7-1-26 Minatojima-minami-machi, Chuo-ku
Kobe, Hyogo 650-0047
Japan

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