Price shocks in regional markets: Japan’s Great Kantō Earthquake of 1923

Abstract Japan’s Great Kanto Earthquake of 1 September 1923 devastated the area around Tokyo and the country’s main port of Yokohama. This article uses the earthquake as a case study to inform our understanding of the economics of disasters and the history of market integration. It seeks to test two main assumptions: first, that shifting demand and supply curves consequent on a disaster will have some impact on prices; and second, that any local changes in the disaster region are likely to be diffused across a wider geographical area. We make use of a unique monthly wholesale price dataset for a number of cities across Japan, and our analysis suggests three main findings: that price changes in the affected areas immediately following the disaster were in most cases reflected in price changes in Japan’s provincial cities; that cities further away from the devastation witnessed smaller price changes than those nearer to the affected area; and that the observed pattern of price changes reflects the regional heterogeneity identified by scholars who have worked on market integration in Japan.