The Association between Subsidies and Productivity: Panel Analysis

Abstract

This study investigates the impact of subsidies, which is a proxy for incentivesgiven to firms in an economy, on value added created by entire economy and four differentsectors (i.e., agriculture, manufacturing, industry, and services). The largest period understudy is between 1972 and 2013 and the largest sample covers 151 countries. First of allunivariate and multivariate fixed time effect models (FEM) and the following univariateand multivariate random time effect models (REM) were estimated using unbalanced paneldata. 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 validityof our empirical results. This study empirically investigates the effect of subsidy on valueadded level of a country. In order to test this relationship the study use five differentindicators for value added. The data used in analyses are unbalanced data and cover theyears between 1972 and 2013 for 151 countries in the largest sense. The main finding of thestudy implies that countries with higher subsidy level experience higher level of valueadded.