The Heterogeneous Impact of Post-Disaster Subsidies on Small and Medium Firms
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The Heterogeneous Impact of Post-Disaster Subsidies on Small and Medium Firms Yuzuka Kashiwagi 1 Received: 9 December 2019 / Accepted: 22 May 2020/ # Springer Nature Switzerland AG 2020
Abstract
This paper examines the effect of Group Subsidy, which is a post-disaster subsidy for restoring and repairing facilities destroyed by great disasters, on the recovery of Japanese small- and medium-sized enterprises (SMEs) following the Great East Japan Earthquake. Group Subsidy was introduced in 2011 and continues to be reapplied in Japan. To assess the impact of this relatively new policy, we use rich firm-level data for firms in Japan that include information on supply-chain ties among them. Our estimates based on propensity score matching show that the subsidy was effective for the recovery of the performance of SMEs in the retail, manufacturing, construction, and energy sectors. However, the positive effect of the subsidy is largely reduced if the SMEs have links outside the disaster areas, except for firms in the construction and energy sector. In the service and wholesale sector, we find no significant difference between the recovery of SMEs with and without the subsidy. Keywords Microeconomic impact of aid . Enterprise recovery . Disasters . Supply chains JEL Classification Codes Q54 . R10 . L10 . MSC Classification Codes: 91.
Introduction Natural disasters are often unanticipated costly events for businesses. To repair or reinstall what disasters destroy, surviving firms are often saddled with loans. Because it is difficult for many local firms to either cover the total cost by themselves or prepare for such rare unpredictable events in advance to reduce the cost, the government often intervenes after disasters. For example, the Government of Japan provided a subsidy known as the Group Subsidy to help small- and medium-sized enterprises (SMEs) recover from the damage caused by the Great East Japan Earthquake in 2011. The United States Small Business Administration
* Yuzuka Kashiwagi yuzu–[email protected]
1
Graduate School of Economics, Waseda University, Tokyo, Japan
Economics of Disasters and Climate Change
and Farm Service Agency also provide disaster assistance to businesses affected by declared disasters. Among developing countries, Sri Lanka, for example, introduced relief aid to local businesses that suffered from the tsunami in 2004 (Dickson and Kangaraarachchi 2006). However, the reconstruction cost is too enormous for the government budgetary resources to absorb, and thus, natural disasters deteriorate the government’s financial conditions (Benali et al. 2018). The cost of disasters for the government is likely to continue growing, considering the increasing frequency and severity of disasters (Altay and Ramirez 2010), and the political motivations inherent in subsidies (Garrett and Sobel 2003). Furthermore, the repeated application of government support may crowd out private coping and private support for individual firms and increase the costs incurred by the government. On the other hand, gove
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