Abstract
This study investigates the impact of public funding on the performance of establishments in Eastern Germany. Using data from the German Institute for Employment Research (IAB) Establishment Panel from 1996 through 2012, the effect of economic promotion in the eastern part of Germany is studied 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. Treated establishments in the area of the former German Democratic Republic (GDR) invested more, had a higher value added and requested more labour than untreated firms when the amount of public funding is considered. However, on average, establishments with a history of previous investments also receive more funding than establishments that do not receive promotion. Also, some of the results are not permanent, such as the share of investment. Other effects of economic promotion in Germany include increases in wages, but these effects are rather small when compared to the size of the economic promotion. In addition, outcome for firms’ productivity is always insignificant and close to zero.
Acknowledgement
This study used data of the IAB Establishment Panel from the Institute for Employment Research (IAB), waves 1996 to 2012. Data access was provided via on-site use at the Research Data Centre (FDZ) of the German Federal Employment Agency (BA) at the IAB and/or remote data access.
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