The Association between Subsidies and Productivity: Panel Analysis

Cüneyt KOYUNCU, Yüksel OKŞAK

Abstract


Abstract. This study investigates the impact of subsidies, which is a proxy for incentives given to firms in an economy, on value added created by entire economy and four different sectors (i.e., agriculture, manufacturing, industry, and services).  The largest period under study is between 1972 and 2013 and the largest sample covers 151 countries. First of all univariate and multivariate fixed time effect models (FEM) and the following univariate and multivariate random time effect models (REM) were estimated using unbalanced panel data. Value added and its logarithmic values are used in the model as a dependent variable. Five different value added variables are used in order to evaluate the sensitivity and validity of our empirical results. This study empirically investigates the effect of subsidy on value added level of a country. In order to test this relationship the study use five different indicators for value added. The data used in analyses are unbalanced data and cover the years between 1972 and 2013 for 151 countries in the largest sense. The main finding of the study implies that countries with higher subsidy level experience higher level of value added.

Keywords. Subsidies, Value Added, Incentives.

JEL. H20, H21, H22.


Keywords


Subsidies; Value added; Incentives.

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DOI: http://dx.doi.org/10.1453/jel.v4i1.1228

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