Abstract: This study examines the Zombie theory which claims the survival of low-productivity firms in Japan has prevented economic recovery since, the bursting of the financial bubble in the late 1980s. The existence of so-called “zombie firms” is one reason for the stagnation of the Japanese economy because they prevent more productive companies from gaining market share and thus, reduce productivity gains for the overall economy. This theory easily results in the neoclassical policy statement that is the government should not intervene the natural process of firms’ metabolism. So, “doing nothing” is the best way to improve macroeconomic performance. However if the bankruptcy of one firm affects others in its network, this argument does not hold because networked firms can become embroiled in a bankruptcy chain. This study assesses the validity of Zombie theory using computer simulations within a network economy setting. It finds that governmental policies to save bankruptcy candidates improve macroeconomic performance in a network economy. In other words, governmental intervention can be effective in this kind of economy by preventing the propagation of a bankruptcy chain that may embroil high-performing firms.