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Creating Jobs Through Public Subsidies: An Empirical Analysis

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Author Info

  • Girma, Sourafel

    ()
    (University of Nottingham)

  • Görg, Holger

    ()
    (Kiel Institute for the World Economy)

  • Strobl, Eric

    ()
    (Ecole Polytechnique, Paris)

  • Walsh, Frank

    ()
    (University College Dublin)

Abstract

This paper analyses the impact of government grants on labour demand using plant level data for manufacturing industry in Ireland. Our data consists of a large sample of plants and their complete grant history. We provide evidence that additional employment is created over and above the level that would have prevailed in the absence of grant payments. We also find differences in the employment response to subsidies between domestic and foreign-owned plants, with the former creating more additional jobs per euro of grant payment. Simple cost-benefit analysis reveals that a large part of the costs of grants appears to be recouped in additional wage streams under reasonable assumptions.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3168.

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Length: 38 pages
Date of creation: Nov 2007
Date of revision:
Publication status: published in: Labour Economics, 2008, 15(6), 1179-1199
Handle: RePEc:iza:izadps:dp3168

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Keywords: multinationals; labour demand; grants;

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References

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  1. Gorg, Holger & Strobl, Eric, 2002. "Multinational companies and indigenous development: An empirical analysis," European Economic Review, Elsevier, vol. 46(7), pages 1305-1322, July.
  2. Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, vol. 68(1), pages 79-113, July.
  3. Barry, Frank & Bradley, John, 1997. "FDI and Trade: The Irish Host-Country Experience," Economic Journal, Royal Economic Society, vol. 107(445), pages 1798-1811, November.
  4. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
  5. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  6. Steve J. Davis & John Haltiwanger, 1991. "Gross Job Creation, Gross Job Destruction and Employment Reallocation," NBER Working Papers 3728, National Bureau of Economic Research, Inc.
  7. Phelps, Edmund S, 1994. "Low-Wage Employment Subsidies versus the Welfare State," American Economic Review, American Economic Association, vol. 84(2), pages 54-58, May.
  8. Harrison, Ann E. & McMillan, Margaret S., 2003. "Does direct foreign investment affect domestic credit constraints?," Journal of International Economics, Elsevier, vol. 61(1), pages 73-100, October.
  9. Picard, Pierre M., 2001. "Job additionality and deadweight spending in perfectly competitive industries: the case for optimal employment subsidies," Journal of Public Economics, Elsevier, vol. 79(3), pages 521-541, March.
  10. Snower, Dennis J, 1994. "Converting Unemployment Benefits into Employment Subsidies," American Economic Review, American Economic Association, vol. 84(2), pages 65-70, May.
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  12. Cabral, Luís M B & Mata, José, 2001. "On the Evolution of the Firm Size Distribution: Facts and Theory," CEPR Discussion Papers 3045, C.E.P.R. Discussion Papers.
  13. Holger G�rg & Eric Strobl, 2003. ""Footloose" Multinationals?," Manchester School, University of Manchester, vol. 71(1), pages 1-19, January.
  14. Helena Lenihan, 2004. "Evaluating Irish industrial policy in terms of deadweight and displacement: a quantitative methodological approach," Applied Economics, Taylor & Francis Journals, vol. 36(3), pages 229-252.
  15. Holger Görg & Eric Strobl, 2006. "Do Government Subsidies Stimulate Training Expenditure? Microeconometric Evidence from Plant-Level Data," Southern Economic Journal, Southern Economic Association, vol. 72(4), pages 860–876, April.
  16. Breen, R. & Halpin, B., 1989. "Subsidising Jobs: An Evaluation of the Employment Incentive Scheme," Research Series, Economic and Social Research Institute (ESRI), number GRS144, September.
  17. Nickell, S.J., 1987. "Dynamic models of labour demand," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 9, pages 473-522 Elsevier.
  18. Holden, Darryl R & Swales, J K, 1995. "The Additionality, Displacement and Substitution Effects of Factor Subsidies," Scottish Journal of Political Economy, Scottish Economic Society, vol. 42(2), pages 113-26, May.
  19. Wren, Colin, 2003. "Informational Rents and Discretionary Industrial Assistance," Royal Economic Society Annual Conference 2003 222, Royal Economic Society.
  20. Frances Ruane & Ali Ugur, 2002. "Foreign Direct Investment And Productivity Spillovers In The Irish Manufacturing Industry: Evidence From Firm Level Panel Data," Trinity Economics Papers 20026, Trinity College Dublin, Department of Economics.
  21. Holger G–rg & Eric Strobl, 2003. "Multinational Companies, Technology Spillovers and Plant Survival," Scandinavian Journal of Economics, Wiley Blackwell, vol. 105(4), pages 581-595, December.
  22. Girma, Sourafel & Gorg, Holger & Strobl, Eric, 2007. "The effects of government grants on plant survival: A micro-econometric analysis," International Journal of Industrial Organization, Elsevier, vol. 25(4), pages 701-720, August.
  23. Layard, P R G & Nickell, S J, 1980. "The Case for Subsidising Extra Jobs," Economic Journal, Royal Economic Society, vol. 90(357), pages 51-73, March.
  24. David Roodman, 2006. "How to Do xtabond2," North American Stata Users' Group Meetings 2006 8, Stata Users Group.
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Cited by:
  1. Koski, Heli & Pajarinen, Mika, 2011. "Do Business Subsidies Facilitate Employment Growth?," Discussion Papers 1235, The Research Institute of the Finnish Economy.
  2. Martin, Philippe & Mayer, Thierry & Mayneris, Florian, 2008. "Public Support to Clusters: A Firm Level Study of French “Local Productive Systems”," CEPR Discussion Papers 7102, C.E.P.R. Discussion Papers.
  3. Heli Koski & Mika Pajarinen, 2013. "The role of business subsidies in job creation of start-ups, gazelles and incumbents," Small Business Economics, Springer, vol. 41(1), pages 195-214, June.
  4. Colombo, Massimo G. & Croce, Annalisa & Guerini, Massimiliano, 2013. "The effect of public subsidies on firms’ investment–cash flow sensitivity: Transient or persistent?," Research Policy, Elsevier, vol. 42(9), pages 1605-1623.
  5. Betcherman, Gordon & Daysal, N. Meltem & Pagés, Carmen, 2008. "Do Employment Subsidies Work? Evidence from Regionally Targeted Subsidies in Turkey," IZA Discussion Papers 3508, Institute for the Study of Labor (IZA).
  6. Koski, Heli & Pajarinen, Mika, 2013. "Subsidies, Shadow of Death and Productivity," ETLA Working Papers 16, The Research Institute of the Finnish Economy.
  7. Seán Ó Riain, 2012. "The Crisis of Financialisation in Ireland," The Economic and Social Review, Economic and Social Studies, vol. 43(4), pages 497-533.

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