Abstract
This study evaluates the impact of “group subsidies,” a policy intervention to repair and reinstall damaged capital goods and facilities of small and medium-sized enterprises after the Great East Japan earthquake and tsunami. In addition to their direct effect on firms that received the subsidies, we estimate their indirect effect on firms that did not receive the subsidies but were linked with recipient firms through supply chains. Employing a propensity score matching and analysis of variance approach, we find a positive effect of the subsidies on small recipient firms’ postdisaster sales and employment. We also find a positive indirect effect of the group subsidies on firms in disaster-hit prefectures that did not receive any group subsidy but were linked through supply chains with a recipient firm. Our results indicate the propagation of postdisaster policy effects through supply chains, which are often ignored in the academic literature and the policymaking arena.
Highlights
When a natural disaster hits a region, the economic shock propagates to regions that are not directly hit by the disaster through the disruption of supply chains
This study evaluates the impact of “group subsidies,” a policy intervention to repair and reinstall damaged capital goods and facilities of small and medium-sized enterprises after the Great East Japan earthquake and tsunami
In addition to their direct effect on firms that received the subsidies, we estimate their indirect effect on firms that did not receive the subsidies but were linked with recipient firms through supply chains
Summary
When a natural disaster hits a region, the economic shock propagates to regions that are not directly hit by the disaster through the disruption of supply chains. The recent emerging literature on this issue found econometric evidence of such propagation, using firm-level data and supply chain information for the United States (Barrot and Sauvagnat 2016); Japan (Carvalho et al 2016); and the world (Kashiwagi, Todo, and Matous 2018). Some other studies, such as Hallegatte (2012); Henriet, Hallegatte, and Tabourier (2012); and Inoue and Todo (2017, 2018), took another approach by using simulation analysis on an agent-based model, confirming the substantial indirect effect of disasters due to propagation. To the best of the authors' knowledge, no study has examined the indirect effect of postdisaster policy interventions on the performance of firms not directly hit by a disaster but linked with directly hit firms
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