Effectiveness of Government Support for the Private Sector during the COVID-19 Crisis : Evidence from ElSalvador and Georgia

This paper estimates the effectiveness of government support to the private sectorduring the COVID-19 pandemic in El Salvador and Georgia using firm-level data collected before and during thepandemic. The two countries are selected because eligibility criteria for support involved pre-pandemic features offirms, as opposed to more prevalent criteria directly linked to firms’ experiences during the pandemic and that greatlyexacerbate concerns about selection bias in estimation. Four outcome variables are studied relating to firms’ workforce,hours of operations, and expectations. Matching and panel estimation techniques are used on full and restrictedsamples, with the latter aimed at reducing selection bias. Government support appears to have helped firms avoid areduction in operations in El Salvador, mainly through cash transfers, which also helped in terms of permanent workers,with the latter effect counteracted by wage subsidies. Smaller firms in Georgia appear to have benefited more fromgovernment support, mostly through fiscal relief, which was partially counteracted by wage subsidies that benefitedlarger firms more. The finding that smaller firms have benefited more helps raise confidence in the analysis asstrong negative selection bias is expected in this context. Manufacturers of textiles and garments in El Salvador andhotels and restaurants in Georgia appear to have benefited from government support, but the patterns in other sectorsare mixed and country-specific, highlighting potential complexities of attempting to target sectors.