Turning 2015 earthquake into an economic model

Picture yourself standing in the middle of a hillside settlement and the ground beneath you is quivering. In an instant, houses around you start to crumble, people are trapped beneath mounds of bricks and stones, and there are clouds of dust everywhere. This senario became a reality when a 7.8 magnitude earthquake hit Nepal on 25 April 2015, killing almost 9,000 people and leaving millions of people homeless and hopeless. From the general public view, this was a complete catastrophe. When we go deeper into this story, however, we see parallels between how a country recovers from an earthquake and how the economy rebounds from a market crash or financial crisis. We can create a better financial system by carefully examining these similarities and applying the lessons learned from the disaster, which some of the prospects will be covered in this article.

How are quakes and economic crises similar?

The majority of us already know that an earthquake does not necessarily finish when a shake does. After the main event, smaller earthquakes, often known as aftershocks, may continue for weeks, months, or even years. For example, the 2015 Gorkha earthquake in Nepal was followed by hundreds of lesser quakes or aftershocks. The 7.3-magnitude earthquake that happened a week following the big one is the best illustration of this phenomenon. On a similar basis, the financial crisis also takes time to settle, as it also has lots of repercussions in both the short term and the long term. The global financial crisis of 2008, for instance, left the world with a number of financial aftershocks, including but not limited to a spike in the unemployment rate, hardship in clearing debt and loans by many poor nations, and a lack of confidence among the world’s biggest investors in the financial market. 

This pattern of market crashes or financial crises is similar to Omori’s law in geophysics. According to Omori's law, which is used in seismology, smaller aftershocks of larger earthquakes gradually become less frequent but never entirely cease. Smaller aftershocks following major financial crises also don't fully resolve in the field of economics. Even after more than ten years, secondary market crashes or long-term unemployment can be observed. We can anticipate and even mitigate the effects of financial crises or market crashes by comprehending the mathematics of earthquakes and their aftershocks.

For example, Nepal’s tragic earthquake in 2015 caused a great deal of chaos and instability, but with careful planning, community togetherness, and adaptation, the disaster was eventually turned into an opportunity. The same concepts may be applied to financial systems, as the market can rebound with careful preparation and adaptation.

Lessons from Gorkha earthquake

Nepal lies in the Himalayan fault line, high-risk seismic zones. So, it is most vulnerable to earthquakes. Retrospecting the 2015 earthquake of Nepal, it poses hardship to the nation in the short term and strength and lessons for the long term. In the capital of the nation, Kathmandu, which has been suffering with pollution and unplanned urbanization, the poorly built houses fell apart, but in the rural areas, the traditional houses stood strong as they were made with traditional and native materials. So, they flexed rather than cracked.

This lesson applies to financial systems. Countries with inflexible economies—those that rely too heavily on a single industry or on foreign aid—are analogous to badly built structures. When a crisis occurs, these systems disintegrate. So, Countries can improve their tenacity to financial shocks by diversifying their income sources and embodying flexibility into their economic policies. 

In Nepal, remittance accounts for almost 25 percent of its total GDP, which clearly shows the nation's heavy dependence on remittance for revenue generation. Whenever global markets fall, remittance flow may decline, weakening Nepal’s economy. In order to fight against this chaos in the near future, Nepal should increase its investment in agriculture and ecotourism and foster small-scale businesses to generate revenue. This attempt can help to reduce a nation's reliance on a single income source.

Tracing financial ‘seismic zones’

Seismology divides Nepal into seismic zones to identify places that are most vulnerable to earthquakes. Similarly, we might classify economies as financial risk zones. Low-income countries with inadequate resources fall into the “high-risk zone” for financial crises. Wealthier countries with diverse economies are considered “low-risk zones”.

For instance, during the Covid-19 pandemic, Nepal’s economy was at sixes and sevens because of its heavy dependence on remittance and tourism, but some countries that have diverse sources of generating revenue, such as Germany, fared better in such a crisis. Therefore, just like how architects design stronger and more durable buildings in high earthquake-prone zones, policymakers and economists should concentrate on strengthening financial buffers in economically weak or challenged nations. 

These buffers could include developing a wide range of economic opportunities, like developing emergency reserve funds for disasters, buttressing exports, and developing market-fluctuation-resistant industries.

Global examples of resilience

Nepal’s experience isn’t unique. In 1995, the Kobe earthquake hit Japan, causing $100bn worth of damage, but at the same time it also sparked a novel approach in constructing earthquake-resistant buildings. Similarly, Japan’s economy recovered fast thanks to solid government planning and community backing.

In economics, the 1987 worldwide stock market meltdown, sometimes known as Black Monday, demonstrated how concerted effort might calm a crisis. Governments and central banks around the world responded with policy measures, like interest rate cuts, to prevent the crash from creating long-term damage.These instances share a common thread: resilience, whether dealing with natural or economic calamities, stems from planning, flexibility, and community support.

Roadmap for future

Nepal’s recovery from the 2015 earthquake reveals important lessons about building strong economies. Engineers are already designing structures to wobble rather than collapse during earthquakes, and legislators may create financial systems that bend but do not shatter.

This entails planning for any type of repercussion, whether physical or economic calamity. To summarize, countries can transform crises into opportunities by diversifying their revenue streams, investing in early warning systems, and offering aid to communities.

The next time the ground shakes—whether from tectonic plates or financial markets—Nepal’s story will remind us that resilience means more than just survival. It's about recovering strength and preparing for what lies ahead.