Do Governmental Subsidies Increase Productivity of Firms? Evidence from a Panel of Slovene Firms

Abstract

Our study focuses on examining the relationship between
productivity (or productivity growth) and state aid allocation
in Slovenia during the period of 1998 to 2012. The country
itself represents almost an ideal case as the amount of
subsidies being allocated in the relevant period decreased
significantly after joining the EU. Our study builds on
the theoretical model of Aghion et al. (2015) arguing
that sectorial policy can enhance growth and efficiency
if it is made competition-friendly. The main results
show, that by increasing dispersion of subsidies within
particular sectors by one standard deviation, the
productivity growth increases by 0.03 percentage
points on average, ceteris paribus. State aid has
been especially important in the period of economic
downturn (2009–2012). However we found evidence
that firms receiving a higher portion of subsidies were
less productive when compared with counterparts from
the same sector receiving less or no subsidies. The
difference was the biggest during the period of
economic downturn.