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Investment crowding-out: firm-level evidence from Germany

Author

Listed:
  • Pavel Ciaian
  • d'Artis Kancs
  • Jerzy Michalek
Abstract
The main objective of the present paper is to estimate the extent to which firm investment is substituted (crowded-out) by investment support policies granted under the EU Rural Development Programme (RDP). In the empirical analyses we employ the difference-in-difference propensity score matching approach, which allows us to address several important sources of bias, such as selection bias, the simultaneity bias, and functional form misspecification, from which many previous studies suffer. Using panel data of 1,333 firms from the Schleswig-Holstein region in Germany, we find that the crowding-out effect of the RDP is close to 100%, implying that firms use public support to substitute for private investments. Furthermore, no evidence was found that, due to RDP programme support, firms would have brought forward their investments planned originally in a later period, rejecting the f inter-temporal substitution of investments.

Suggested Citation

  • Pavel Ciaian & d'Artis Kancs & Jerzy Michalek, 2015. "Investment crowding-out: firm-level evidence from Germany," Working Papers of LICOS - Centre for Institutions and Economic Performance 516219, KU Leuven, Faculty of Economics and Business (FEB), LICOS - Centre for Institutions and Economic Performance.
    • Handle: RePEc:ete:licosp:516219
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    Cited by:

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    2. Jerzy Michalek & Pavel Ciaian & D'Artis Kancs, 2016. "Investment Crowding Out: Firm-Level Evidence from Northern Germany," Regional Studies, Taylor & Francis Journals, vol. 50(9), pages 1579-1594, September.
    3. Michalek, Jerzy, 2022. "Environmental and farm impacts of the EU RDP agri-environmental measures: Evidence from Slovak regions," Land Use Policy, Elsevier, vol. 113(C).
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    5. Peter Mayerhofer, 2016. "Unternehmensinvestitionen in den österreichischen Bundesländern. Entwicklung – Struktur – Funktion regionaler Förderung," WIFO Studies, WIFO, number 58936, August.
    6. Ratinger, T. & Medonos, Tomas & Hruška, M., 2013. "An Assessment of the Differentiated Effects of the Investment Support to Agricultural Modernisation: the Case of the Czech Republic," AGRIS on-line Papers in Economics and Informatics, Czech University of Life Sciences Prague, Faculty of Economics and Management, vol. 5(4), pages 1-12, December.
    7. Javier Castaño & Maria Blanco & Pilar Martinez, 2019. "Reviewing Counterfactual Analyses to Assess Impacts of EU Rural Development Programmes: What Lessons Can Be Learned from the 2007–2013 Ex-Post Evaluations?," Sustainability, MDPI, vol. 11(4), pages 1-22, February.
    8. Gorzelak, Aleksander & Herda-Kopańska, Justyna & Kulawik, Jacek & Soliwoda, Michał & Wieliczko, Barbara, 2017. "Controversies over the European Value Added created by CAP," Problems of Agricultural Economics / Zagadnienia Ekonomiki Rolnej 263847, Institute of Agricultural and Food Economics - National Research Institute (IAFE-NRI).
    9. Stjepan Srhoj & Bruno Škrinjarić & Sonja Radas, 2021. "Bidding against the odds? The impact evaluation of grants for young micro and small firms during the recession," Small Business Economics, Springer, vol. 56(1), pages 83-103, January.
    10. Jana LOSOSOVÁ & Radek ZDENĚK & Jaroslav SVOBODA, 2020. "Tangible fixed assets in Czech small and middle-sized farms Abstract: The aim of this paper is to analyse the development, structure and efficiency of tangible fixed assets in the Czech farms and iden," Eastern Journal of European Studies, Centre for European Studies, Alexandru Ioan Cuza University, vol. 11, pages 236-251, June.
    11. Olga Ivanova & d'Artis Kancs & Dirk Stelder, 2009. "Modelling Inter-Regional Trade Flows: Data and Methodological Issues in Rhomolo," EERI Research Paper Series EERI RP 2009/31, Economics and Econometrics Research Institute (EERI), Brussels.
    12. Stjepan Srhoj & Bruno Skrinjaric & Sonja Radas & Janette Walde, 2019. "Closing the Finance Gap by Nudging: Impact Assessment of Public Grants for Women Entrepreneurs," Working Papers 1902, The Institute of Economics, Zagreb.
    13. Špička, J., 2018. "Dynamic Effects of Public Investment Support in the Food and Beverage Industries," AGRIS on-line Papers in Economics and Informatics, Czech University of Life Sciences Prague, Faculty of Economics and Management, vol. 10(1).
    14. Baldoni, Edoardo & Ciaian, Pavel, 2023. "The capitalization of CAP subsidies into land prices in the EU," Land Use Policy, Elsevier, vol. 134(C).
    15. Jerzy Michalek & Pavel Ciaian & Jan Pokrivcak, 2018. "The impact of producer organisations on farm performance: A case study of large farms in Slovakia," JRC Research Reports JRC108059, Joint Research Centre.
    16. Pavel Ciaian & Edoardo Baldoni & d'Artis Kancs & Dušan Drabik, 2021. "The Capitalization of Agricultural Subsidies into Land Prices," Annual Review of Resource Economics, Annual Reviews, vol. 13(1), pages 17-38, October.
    17. Whelan, Adele & McGuinness, Seamus & Barrett, Alan, 2021. "Review of International Approaches to Evaluating Rural and Community Development Investment and Supports," Research Series, Economic and Social Research Institute (ESRI), number RS124.
    18. Radek Zdeněk & Jana Lososová, 2020. "Investments of Czech farms located in less favoured areas after EU accession," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 66(2), pages 55-64.
    19. Wang, Baixun & Zhao, Wenjuan, 2022. "Interplay of renewable energy investment efficiency, shareholder control and green financial development in China," Renewable Energy, Elsevier, vol. 199(C), pages 192-203.
    20. Ondřej Dvouletý & Ivana Blažková, 2019. "The Impact of Public Grants on Firm-Level Productivity: Findings from the Czech Food Industry," Sustainability, MDPI, vol. 11(2), pages 1-24, January.
    21. Idowu James Fasakin & Adebayo Isaiah Ogunniyi & Lateef Olalekan Bello & Djana Mignouna & Razack Adeoti & Zoumana Bamba & Tahirou Abdoulaye & Bola Amoke Awotide, 2022. "Impact of Intensive Youth Participation in Agriculture on Rural Households’ Revenue: Evidence from Rice Farming Households in Nigeria," Agriculture, MDPI, vol. 12(5), pages 1-17, April.
    22. Alt, Marius & Berger, Marius & Bersch, Johannes, 2023. "Investor responses to information updates on peer behavior and public investment policy: The case of green investments," ZEW Discussion Papers 23-024, ZEW - Leibniz Centre for European Economic Research.
    23. Michalek, Jerzy & Ciaian, Pavel & Pokrivcak, Jan, 2018. "The impact of producer organizations on farm performance: The case study of large farms from Slovakia☆," Food Policy, Elsevier, vol. 75(C), pages 80-92.
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    More about this item

    Keywords

    investment subsidy; crowding-out; substitution effect; additionality; subsidy leverage; propensity score matching;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location
    • R4 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics

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