State Aid for Industrial Enterprises in Belarus: Remedy or Poison?

Kolesnikova, Irina (2010): State Aid for Industrial Enterprises in Belarus: Remedy or Poison?

Abstract

In this paper the impact of various types of state aid on aggregate productivity growth in Belarusian manufacturing is investigated by combining the data on government support with firm-level accounting data for period 1998-2007. Obtained results indicate that the state aid provided for restructuring truly leads to the modernization of the enterprises (capital-to-labor ratio grows), that this modernization leads to an increase in effectiveness (TFP grows, especially at large enterprises), and that this growth of TFP allows the newly restructured enterprises to raise their market share which results in the growth of the allocative efficiency. However, when the state aid is provided to support enterprises in financial distress, while it leads to an increase in employment (only for enterprises receiving aid, especially for large enterprises, but not for the total sample) and to an expansion in the market share of large enterprises (not small and medium size), this achievement comes at the expense of the decrease in TFP.

• Item Type: MPRA Paper
• Language: English
• Keywords: State aid; total factor productivity; allocative efficiency; Arellano-Bond method.
• Subjects: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C13 - Estimation: General; O - Economic Development, Innovation, Technological Change, and Growth > O2 - Development Planning and Policy > O25 - Industrial Policy; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O49 - Other; C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C33 - Panel Data Models ; Spatio-temporal Models; L - Industrial Organization > L5 - Regulation and Industrial Policy > L53 - Enterprise Policy

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