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Investment Crowding-Out: Firm-Level Evidence from Germany

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  • Pavel Ciaian
  • d'Artis Kancs
  • Jerzy Michalek

Abstract

The main objective of the present paper is to estimate the extent to which firm investment is substituted (crowded-out) by investment support policies granted under the EU Rural Development Programme (RDP). In the empirical analyses we employ the difference-in-difference propensity score matching approach, which allows us to address several important sources of bias, such as selection bias, the simultaneity bias, and functional form misspecification, from which many previous studies suffer. Using panel data of 1,333 firms from the Schleswig-Holstein region in Germany, we find that the crowding-out effect of the RDP is close to 100%, implying that firms use public support to substitute for private investments. Furthermore, no evidence was found that, due to RDP programme support, firms would have brought forward their investments planned originally in a later period, rejecting the f inter-temporal substitution of investments.

Suggested Citation

  • Pavel Ciaian & d'Artis Kancs & Jerzy Michalek, 2015. "Investment Crowding-Out: Firm-Level Evidence from Germany," LICOS Discussion Papers 37015, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
  • Handle: RePEc:lic:licosd:37015
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    1. repec:taf:regstd:v:50:y:2016:i:9:p:1579-1594 is not listed on IDEAS
    2. Jerzy Michalek & Pavel Ciaian & D'Artis Kancs, 2016. "Investment Crowding Out: Firm-Level Evidence from Northern Germany," Regional Studies, Taylor & Francis Journals, vol. 50(9), pages 1579-1594, September.
    3. Ratinger, T. & Medonos, Tomas & HrusÌŒka, M., 2013. "An Assessment of the Differentiated Effects of the Investment Support to Agricultural Modernisation: the Case of the Czech Republic," AGRIS on-line Papers in Economics and Informatics, Czech University of Life Sciences Prague, Faculty of Economics and Management, vol. 5(4), December.

    More about this item

    Keywords

    Investment subsidy; crowding-out; substitution effect; additionality; subsidy leverage; propensity score matching.;

    JEL classification:

    • F1 - International Economics - - Trade
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location
    • R4 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics

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