This study evaluates the impact of a policy intervention to repair and reinstall damaged capital goods and facilities of small and medium-sized enterprises after the Great East Japan Earthquake. 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 post-disaster sales and employment of small recipient firms. 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 post-disaster policy effects through supply chains, which are often ignored in the academic literature and policy-making arena.
