IS THERE AN INDISPENSABLE ROLE FOR GOVERNMENT DURING RECOVERY FROM AN EARTHQUAKE? A THEORETICAL ELABORATION

It is commonly argued that catastrophic effects of physical shocks are recovered consequentially due to internal adjustment mechanisms economies retain. The theoretical literature on growth implications of earthquakes relies on the same premise, by and large, putting relatively minor role on the shoulders of governments as an external source in recovering from catastrophic effects of an earthquake. This paper elaborates theoretically whether there is an indispensable role for government during recovery from the destructive effects of an earthquake. To this end, we employ a specific growth environment, namely AK framework, which imposes constant ratios on the quantities of the model from the start. It follows that, when a physical shock hits the economy, the model fails to restore these conditions automatically. The paper contributes to the literature in two ways. First, it shows that an indispensable role for government in restoring equilibrium after an earthquake is a theoretical possibility. Second, it advances our understanding on the procedure of restoring equilibrium when there are fixed ratios between quantities, an issue that is not known very much in the literature.