One of the main implications of the New Economic Geography, developed since the
1990s, is that a temporary shock can create a persistent impact on the geographic
distribution of economic activities because of multiple equilibria. This paper
investigates the long-run impact of a temporary shock on the geographic distribution of
industries in Tokyo Prefecture, Japan, using the Great Kanto Earthquake in 1923 as a
natural experiment. It is revealed that the temporary shock from the Great Kanto
Earthquake was basically dissipated by 1936, just before the full-scale war with China
broke out. On the other hand, through industry-level investigation, it is found that with
respect to the machinery and metal industry, the impact was persistent and remained
even in 1936. These findings suggest the importance of the industrial structure and
transaction networks within industry in the mechanism determining geographic
distribution of industries.
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