Does Public Funding Work? A Causal Analysis of the Effects of Economic Promotion with Establishment Panel Data.

This study aimed to analyse the impact of public economic promotion on the performance of establishments. Using data from the German Institute for Employment Research (IAB) establishment panel from 1996 through 2009, we studied the effect of public funding on a number of indicators that provide insight into the topic. For this purpose, conditional difference-in-differences estimators were derived using a propensity score matching approach. Supported establishments were found to invest more and request more labour when the amount of public funding is considered. However, on average, establishments that have a history of previous investments also have a higher probability to receive funding than other entities. On the other hand, the evidence suggests that funded establishments reduce their investments shortly before funding. This could point to changes in the behaviour of the establishments, because of the expected economic promotion. Also, it seems that the results are permanent, when the analysis is conducted with natural values instead of logarithms. Other effects of economic promotion in Germany include increases in employment, value added and productivity. [ABSTRACT FROM AUTHOR]