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When are investment subsidies crucial for investments?

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Author Info
Mika Haapanen ()
Anu Tokila ()
Jari Ritsilä ()

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Abstract

EU enlargement to the less developed countries in Central and Eastern Europe is forcing policy makers to reconsider the role of business subsidies in the EU. For example, to what extent the use of investment subsidies should be allowed in the future? Which regions should be supported? In this paper we study conditions under which investment subsidy is a necessary requirement for project implementation in Finland. Empirical analysis is conducted using micro level data on investment projects of private sector firms. The data set comprises 1,836 projects that received public investment subsidies between 2001 and 2003. Our results show that the necessity of the investment subsidies is strongly dependent on the location of the firm as well as on the size of the firm and the investment project.

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Paper provided by European Regional Science Association in its series ERSA conference papers with number ersa05p466.

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Date of creation: Aug 2005
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Handle: RePEc:wiw:wiwrsa:ersa05p466

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  1. Wren, Colin, 1998. " Subsidies for Job Creation: Is Small Best?," Small Business Economics, Springer, vol. 10(3), pages 273-81, May. [Downloadable!] (restricted)
  2. Davidson, Russell & MacKinnon, James G., 1984. "Convenient specification tests for logit and probit models," Journal of Econometrics, Elsevier, vol. 25(3), pages 241-262, July. [Downloadable!] (restricted)
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  3. Takis Venetoklis, 2001. "Business Subsidies and Bureaucratic Behaviour - A Revised Approach," Research Reports 83, Government Institute for Economic Research Finland (VATT). [Downloadable!]
  4. Daniel Felsenstein, 2002. "Small-Scale Entrepreneurship and Access to Capital in Peripheral Locations: An Empirical Analysis," Growth and Change, Gatton College of Business and Economics, University of Kentucky, vol. 33(2), pages 196-215. [Downloadable!] (restricted)
  5. Faini, Riccardo & Schiantarelli, Fabio, 1987. "Incentives and Investment Decisions: The Effectiveness of Regional Policy," Oxford Economic Papers, Oxford University Press, vol. 39(3), pages 516-33, September. [Downloadable!] (restricted)
  6. Petersen, Mitchell A & Rajan, Raghuram G, 1994. " The Benefits of Lending Relationships: Evidence from Small Business Data," Journal of Finance, American Finance Association, vol. 49(1), pages 3-37, March. [Downloadable!] (restricted)
  7. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June. [Downloadable!] (restricted)
  8. Daly, Michael & Gorman, Ian & Lenjosek, Gordon & MacNevin, Alex & Phiriyapreunt, Wannakan, 1993. "The impact of regional investment incentives on employment and productivity : Some Canadian evidence," Regional Science and Urban Economics, Elsevier, vol. 23(4), pages 559-575, September. [Downloadable!] (restricted)
  9. Newey, Whitney K, 1985. "Maximum Likelihood Specification Testing and Conditional Moment Tests," Econometrica, Econometric Society, vol. 53(5), pages 1047-70, September. [Downloadable!] (restricted)
  10. Wren, Colin, 1996. "Fund Substitution and the Incentive Effect of Public Investment Subsidies," Scottish Journal of Political Economy, Scottish Economic Society, vol. 43(5), pages 534-48, November.
  11. Gerhard Untiedt & Hans Joachim Schalk, 2000. "Regional investment incentives in Germany: Impacts on factor demand and growth," The Annals of Regional Science, Springer, vol. 34(2), pages 173-195. [Downloadable!] (restricted)
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