The positive relationship between trust and happiness has been demonstrated by the literature. However, it is not clear how much this relationship depends on environmental conditions. The Great East Japan Earthquake of 2011 is considered one of the most catastrophic events in human history. This disaster caused not only physical damage for Japanese people, but also perceived damage. Using individual-level panel data from Japan covering the period 2009-2012, this paper attempts to probe how the relationship between trust and happiness was influenced by the Great East Japan Earthquake by comparing the same individuals before and after the earthquake. A fixed-effects estimation showed that there is a statistically well-determined positive relationship between trust and happiness and this relationship was strengthened by disaster, especially for residents in the damaged area. We argue that social trust is a substitute for formal institutions and markets, which mitigates the effect of disaster-related shock on psychological conditions such as happiness. Therefore, a trustful society is invulnerable to a gigantic disaster.

This study proposes a panel cointegration approach using the PANIC method for understanding the regional growth dynamics using nonstationary panel data, and applies it to Japanese prefectures. This approach enables us to analyze both long-run equilibrium growth path and short-run dynamics across the regions. Specifically, we find that there is one common source of growth to which prefectures attach different weights, that the per capita real income of follower-prefectures will catch up to that of leaderprefectures, and that temporal fluctuations of the catch-up process elicited by Barro type regression qualitatively corresponds to short-run dynamics across prefectures by the PANIC method. JEL Classification: O40; C22; C23.