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How are growth and productivity in private firms affected by public subsidy? Evidence from a regional policy

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  • Bernini, Cristina
  • Pellegrini, Guido

Abstract

The paper provides a statistically robust evaluation of the impact of state aid on capital accumulation in subsidized firms. The analysis considers subsidies allocated to the southern Italian regions over the period 1996-2004 under the regional policy, Law 488/1992. We apply an MDID estimator, taking selection on observables and non observables into account. Results evidence a higher growth in output, employment and fixed assets in subsidized firms but a lesser increase in Total Factor Productivity than in unsubsidized firms. The negative impact on long term productivity and growth reduces the positive temporary effects of regional subsidies.

Suggested Citation

  • Bernini, Cristina & Pellegrini, Guido, 2011. "How are growth and productivity in private firms affected by public subsidy? Evidence from a regional policy," Regional Science and Urban Economics, Elsevier, vol. 41(3), pages 253-265, May.
  • Handle: RePEc:eee:regeco:v:41:y:2011:i:3:p:253-265
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