Discussion paper

DP17552 The Impact of Firm-level Covid Rescue Policies on Productivity Growth and Reallocation

We analyze the impact of Covid-19 rescue policies on both firm-level and aggregate productivity growth and reallocation. Using administrative data on the universe of firms’ subsidies in Flanders, we estimate the causal impact of these subsidies on firm-level outcomes. Firms that received subsidies saw a 7% increase in productivity, compared to firms that applied for, but did not obtain subsidies. Furthermore, the propensity to exit the market was 43% lower for treated firms. Aggregate productivity growth, a share-weighted sum of firms’ productivity evolutions, amounted to 6% in 2020. While within-firm productivity growth was similar for both subsidized and non-subsidized firms, there is a reallocation of market shares from subsidized firms to non-subsidized firms. These results suggest that Covid rescue policies helped firms to sustain and preserve productivity, while not obstructing allocative efficiency gains to non-subsidized firms.

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Citation

Konings, J, G Magerman and D Van Esbroeck (eds) (2022), “DP17552 The Impact of Firm-level Covid Rescue Policies on Productivity Growth and Reallocation”, CEPR Press Discussion Paper No. 17552. https://new.cepr.org/publications/dp17552