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The impact of state aid for restructuring on the allocation of resources

  • Helena Schweiger



The success of an economy depends largely on how successful it is in allocating inputs and outputs across businesses efficiently with minimum disruption and frictions. Market institutions that impact this allocation potentially account for productivity differences across countries. Existing studies use quite broad measures of institutions, mostly at the country level. This paper is the first to use census micro level data on a market institution with a potentially very distortive effect – state aid for the rescue and restructuring of firms in difficulty. I investigate the impact of this aid on static and dynamic efficiency of Slovenian manufacturing by combining the aid data with firm-level accounting data, using treatment effects estimators that assume selection on observables (linear regression models) and estimators that explicitly allow for selection on unobservables (instrumental variables models). The identification strategy in the latter models involves using variables that affect the chances of getting aid before 2002, but not after. The empirical analysis reveals that state aid hindered the efficient static allocation of resources, as measured by the Olley and Pakes (1996)-inspired micro covariance measure. None of the firms that received aid exited, aid had a positive impact on the growth rate of market shares, but did not have a significant impact on the growth of total factor productivity (TFP). These results suggest that aid was distortive.

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Paper provided by European Bank for Reconstruction and Development, Office of the Chief Economist in its series Working Papers with number 127.

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Length: 41 pages
Date of creation: May 2011
Date of revision:
Handle: RePEc:ebd:wpaper:127
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  1. Richard Disney & Jonathan Haskel & Ylva Heden, 2003. "Restructuring and productivity growth in uk manufacturing," Economic Journal, Royal Economic Society, vol. 113(489), pages 666-694, 07.
  2. Mojmir Mrak, 2004. "Mrak, M., Rojec, M., Silva-Jáuregui, C. (eds.): Slovenia: From Yugoslavia to the European Union," Transition Studies Review, Springer, vol. 11(3), pages 269-272, December.
  3. Marcela Eslava & John Haltiwanger & Adriana Kugler & Maurice Kugler, 2004. "The effects of structural reforms on productivity and profitability enhancing reallocation: Evidence from Colombia," Economics Working Papers 763, Department of Economics and Business, Universitat Pompeu Fabra.
  4. repec:cup:cbooks:9780521465618 is not listed on IDEAS
  5. Domenico J. Marchetti & Francesco Nucci, 2001. "Labor effort over the business cycle," Temi di discussione (Economic working papers) 424, Bank of Italy, Economic Research and International Relations Area.
  6. Mojmir Mrak & Matija Rojec & Carlos Silva-Jáuregui, 2004. "Slovenia : From Yugoslavia to the European Union," World Bank Publications, The World Bank, number 15032.
  7. De Loecker, Jan & Konings, Jozef, 2006. "Job reallocation and productivity growth in a post-socialist economy: Evidence from Slovenian manufacturing," European Journal of Political Economy, Elsevier, vol. 22(2), pages 388-408, June.
  8. Richard Disney & Jonathan Haskel & Ylva Heden, 2003. "Entry, Exit and Establishment Survival in UK Manufacturing," Journal of Industrial Economics, Wiley Blackwell, vol. 51(1), pages 91-112, 03.
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