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Capital Subsidies and the Performance of Firms

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  • Bergström, Fredrik

    (Dept. of Economic Statistics, Stockholm School of Economics)

Abstract

: In many countries, governments grant different capital subsidies to the business sector in order to promote growth. Also the EU, provides this type of subsidies. As De Long and Summers (1991) suggest there might be market failure justifications for public subsidisation of firms. However, because the use of subsidise is not unproblematic, it is far from clear how they affect long-run economic growth. This study examines the effects on total factor productivity of public capital subsidies to firms in Sweden between 1987 and 1993. Panel data which distinguish between subsidised and non-subsidised firms in the manufacturing industry are used. The results suggest that subsidisation can influence growth, but there seems to be little evidence that the subsidies have affected productivity.

Suggested Citation

  • Bergström, Fredrik, 1998. "Capital Subsidies and the Performance of Firms," SSE/EFI Working Paper Series in Economics and Finance 285, Stockholm School of Economics.
    • Handle: RePEc:hhs:hastef:0285
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    Citations

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    Cited by:

    1. Giovanni Trovato & Marco Alfó, 2006. "Credit rationing and the financial structure of Italian small and medium enterprises," Journal of Applied Economics, Universidad del CEMA, vol. 9, pages 167-184, May.
    2. Bruno Chiarini & Elisabetta Marzano & Francesco Busato & Pasquale De Angelis, 2007. "State Aid Policies and Underground Activities," Discussion Papers 4_2007, D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy.
    3. Paweł Gajewski, 2007. "Ekonomiczne efekty polityki regionalnej," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 1-2, pages 59-81.
    4. Lopez, Ramon & Galinato, Gregmar I., 2007. "Should governments stop subsidies to private goods? Evidence from rural Latin America," Journal of Public Economics, Elsevier, vol. 91(5-6), pages 1071-1094, June.
    5. 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.
    6. Lopez, Ramon E. & Islam, Asif M., 2008. "When Government Spending Serves the Elites: Consequences for Economic Growth in a Context of Market Imperfections," Working Papers 45875, University of Maryland, Department of Agricultural and Resource Economics.
    7. Venetoklis, Takis, 2000. "Impact of Business Subsidies on Growth of Firms - Preliminary Evidence from Finnish Panel Data," Discussion Papers 220, VATT Institute for Economic Research.
    8. Bernini, Cristina & Pellegrini, Guido, 2013. "Is subsidising tourism firms an effective use of public funds?," Tourism Management, Elsevier, vol. 35(C), pages 156-167.
    9. Alessandro Cusimano & Fabio Mazzola, 2013. "Ex-post evaluation of Territorial Integrated Projects in Italy: an empirical analysis at firm level," ERSA conference papers ersa13p1331, European Regional Science Association.
    10. Richard Harris & Mary Trainor, 2005. "Capital Subsidies and their Impact on Total Factor Productivity: Firm‐Level Evidence from Northern Ireland," Journal of Regional Science, Wiley Blackwell, vol. 45(1), pages 49-74, February.
    11. López, Ramón & Miller, Sebastian J., 2008. "Chile: The Unbearable Burden of Inequality," World Development, Elsevier, vol. 36(12), pages 2679-2695, December.
    12. Ramón López, 2007. "Fiscal policies in highly unequal societies: implications for agricultural growth," The Electronic Journal of Agricultural and Development Economics, Food and Agriculture Organization of the United Nations, vol. 4(1), pages 123-145.
    13. Olson, Kent D. & Vu, Linh, 2009. "Productivity Growth, Technical Efficiency and Technical Change on Minnesota Farms," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49204, Agricultural and Applied Economics Association.

    More about this item

    Keywords

    Industrial policy; regional policy; capital subsidies; total factor productivity (TFP);
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • L98 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Government Policy
    • O20 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - General
    • R58 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Regional Development Planning and Policy

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