4. Analysis of Supply Chain Disruptions from the Great East Japan Earthquake in the Automotive Industry and Electronic Parts/Devices

This chapter constructs a two-region computable general equilibrium (2SCGE) model for the regions affected and not affected by the Great East Japan Earthquake of 2011. Using this model, we simulate negative supply shocks for both the upper-level sectors between regions and the lower-level sectors within the regions. Our results can be summarized as follows: (1) For negative supply shocks in the upper-level sectors across regions, production of automotive parts in the affected region could decline by as much as two times and still not have much of a negative effect on automotive assembly and production of automotive parts in other regions, if those parts are of commodity-grade. (2) For negative supply shocks in lower-level sectors within each region, to the extent that raw materials and intermediate goods produced by the manufacturing sector in the lower portion of the automotive production pyramid in the affected regions are difficult to source from non-affected regions; the more production in that industry drops, the greater is the negative effect on production of automotive parts and automobile production in the affected regions. From these results, we can derive the following implications: First, the automotive industry clusters in the affected region are inevitable, given the number of automotive parts. However, to construct a production pyramid structure, and from the standpoint of managing the risks from natural disasters, the pyramid must be completely formed while also being flexible across regions. This is another reason that it is preferable to avoid parts which can only be sourced from the same region and have even raw materials and intermediate goods be commodity-grade and substitutable from other regions, supplied by manufacturers in the lower portion of the production pyramid in the same region. Second, in addition, industrial promotion measures are required to aid the formation of such automotive industry clusters. For this purpose, one should consider utilizing the fiscal measures currently being undertaken for the affected regions.