Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/201231
Authors: 
Koski, Heli
Pajarinen, Mika
Year of Publication: 
2013
Series/Report no.: 
ETLA Working Papers 16
Abstract: 
Our panel data from over 10,000 Finnish firms during the years 2003-2010 sheds light on the effect of different business subsidies on firm productivity performance and on the relationship between firms’ lagged labor productivity and market exit. We find that not any of the subsidy types have statistically significant short-term or longer term impacts on the firms’ productivity performance. It seems that particularly employment and investment subsidies tend to be allocated to the relatively less efficient companies. We further observe that a decline in the firm’s lagged labor productivity levels are clearly more weakly related to the subsidized firms’ exit than to the exit of firms that have not received any subsidies. Our empirical findings thus hint that the allocation of subsidies to the relatively inefficient firms increases their liquidity making their market exit less likely than it would be otherwise. In other words, our data indicate that subsidy allocation weakens the shadow of death phenomenon observed in the previous empirical studies and hinders the process of creative destruction in the economy.
Subjects: 
productivity
business subsidies
firm exit
enterprise policy
technology policy
JEL: 
D24
J23
L10
L53
O25
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.