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Measuring Regional Wealth and Assessing Sustainable Development: An Application to a Disaster-Torn Region in Japan

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We construct a regional comprehensive wealth as an indicator of sustainability in Miyagi Prefecture, Japan. Of particular interest is the change in wealth before and after a natural disaster, since the index could serve as a benchmark of investment into post-disaster reconstruction. We first discuss an optimum spatial unit of wealth accounting and sustainability analysis. The resultant regional wealth index had already been slightly declining during the 2000s due to stagnant investment into capital assets, oil capital loss, and budget deficit burden, until a natural disaster made the region significantly unsustainable. This wealth trend also differs from what emerges from the figures in Inclusive Wealth Report 2012. Including population decrease makes the wealth per capita look better, whose interpretation warrants caution due to the neglected forward-looking demographic change in a developed nation.

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  1. Romano and Ercolano (2013) study environmental virtuosity of Italian municipalities.

  2. Measuring virtual sustainability by including resource consumption embodied in traded goods is one such treatment. For a discussion on its justification, see, e.g., Atkinson and Hamilton (2002) and chapter 5 of UNU-IHDP and UNEP (2012).

  3. See Cohen-Cole and Fletcher (2008) and the references therein for details.

  4. It would be unrealistic for a small town or community to be totally independent in terms of its economy or ecology. For example, it has been sometimes argued that each region should be self-sufficient in terms of its energy consumption. However, this would be overly inefficient if, say, a city enjoying the benefit of agglomeration had to generate electricity for its own municipality using an expensive plot of urban land or a countryside rich in ecosystem had to destroy natural habitat to manufacture consumption goods to provide for its own citizens.

  5. While the market exchange rate is appropriate for manufactured capital and other tradable resources, it might overvalue capital assets generated from non-tradable goods and services. The situation is reversed if we study relatively poor countries. In this regard, an alternative would be to use the PPP rate.

  6. We use the damage rate estimated by the Development Bank of Japan, but its estimated capital stock in monetary terms per se cannot be employed here, because this figure is what it would cost if the assets were purchased in the market from scratch. Obviously, this does not reflect the depreciation that has eroded the assets over time (Harada 2012).

  7. Through this assumption, we also include unemployed and discouraged workers in human capital, because this reflects the potential assets.

  8. As with physical capital, the figures for human capital are counted for the Japanese fiscal year (from April to March). The damage after the earthquake on March 11, therefore, is supposed to be contained under the FY 2010 technically, but the labor force figures are the fiscal year average, and thus we assume that the majority of the damage was not reflected in the 2010 data.

  9. This observation gives rise to two potential arguments. First, fishery production is a joint output of fishery resource, capital and labor, so that its accounting price depends upon the scarcity of the latter two production factors. The argument here is reminiscent of ecosystem services as a joint product of produced and natural capital (Boyd and Banzhaf 2007). Second, wealth accounting from the capability approach (Sen 1982) should reflect the status of other capitals (produced and human capital in the current example) associated with the capital in question, which in turn determines accounting prices. Although this is a critical issue, particularly regarding human capital (unemployment), in our current paper, we opt to account for potential stocks of a capital, regardless of its interaction with other capital assets, in order to be consistent with other studies and because of data availability.

  10. FAO (2010) reports that 17,803 km3 of industrial roundwood as opposed to 160 km3 of woodfuels were removed in 2005.

  11. Murota (2008) also calculates prefectural emissions as 5857, 5860, and 5876 ktC, for 2000, 2006, and 2010 (projected), respectively. While his estimates are higher than those of Kainou by the order of 1 mtC, we take the latter figures because they are exhaustive and frequently updated.

  12. In fact, the crude oil price shot up at 13.2 % per annum during the period under study, so our assumption of capital loss is on the conservative side.

  13. Even if we account for debts as negative capital assets, the majority are cancelled out domestically, since 92 % of them were held by the Japanese public at the end of 2011 (Bank of Japan, Flow of Funds Accounts).

  14. This amount includes not only the direct consequences of the disaster but also unrelated capital depreciation, such as the decrease in human capital, carbon emissions, excess burden, and oil capital loss.

  15. Of course, if future resource price prospects decline owing to nonconventional sources, this benefit lessens.

  16. We also have to bear in mind that population in reality is not independent of socioeconomic variables. Thus, there exists the paradox that even though a decreasing population requires less investment, more investment is needed to attract people to migrate into the region. We have to ignore this important point in this paper.

  17. For the details of this result, see Yamaguchi (2014).


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The authors appreciate beneficial comments from (many) anonymous referees, Federico Castillo, Masaaki Kuboniwa, Shunsuke Managi, Anil Markandya, Alistair Munro, Ayumi Onuma, Itsuo Sakuma, Michinori Uwasu, participants of workshops/sessions at Kyoto, Senshu, SEEPS 2013 (Kobe, Japan), EAAERE 2014 (Busan, South Korea), 17th International Economic Association World Congress (Dead Sea, Jordan), and the 5th World Congress of Environmental and Resource Economists (Istanbul, Turkey). Grant-in-Aid for Specially Promoted Research (26000001) by Japan Society for the Promotion of Science (JSPS), as well as Social Scientific Survey of Great East Japan Earthquake by JSPS, are also acknowledged.

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Correspondence to Rintaro Yamaguchi.



See Table 12.

Table 12 Assumptions and sources of calculation

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Yamaguchi, R., Sato, M. & Ueta, K. Measuring Regional Wealth and Assessing Sustainable Development: An Application to a Disaster-Torn Region in Japan. Soc Indic Res 129, 365–389 (2016).

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