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Empirical Economics

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12.10.2023

Direct and indirect effects of regional economic stimuli

verfasst von: Matěj Bělín, Ondrej Buchel

Erschienen in: Empirical Economics | Ausgabe 4/2024

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Abstract

This paper estimates the impact of investment incentives in Slovakia on the unemployment rates in districts to which these incentives were targeted as well as potential spatial spillover effects. The results show that incentives directed to the least developed districts (LDDs) of the country are associated with a statistically significant reduction in unemployment rate growth in the targeted districts by about 0.1 percentage point per month over the course of three years following the intervention. By contrast, we estimated a precise zero effect of investment incentives targeted to non-LDDs. These findings are consistent with the standard economic argument of diminishing marginal returns. Estimates of the spillover effects are also centred around zero.

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The legal definition of LDDs has changed multiple times over the years but, as of October 2020, a district qualifies for the category of the least developed district if the rate of unemployment in the district in at least 9 quarters out of the last consecutive 12 quarters has been higher than 1.5 times the average rate of unemployment in the country for the given quarter and above 8%. The original definition was slightly stricter with districts being labelled LDD if their local rate of unemployment has been higher than 1.6 times the national rate of unemployment for the past 9 consecutive quarters. (cf. Journal of Laws No. 336/2015).

As of June 2020, there were a total of 770 contracts for contributions listed by the Office of Deputy Prime Minister for Investment and Informatization, in a total sum of 56.5 million euros and an average contribution of 73.4 thousand euros per contract (https://www.nro.vicepremier.gov.sk/site/assets/files/1238/zoznam_zmluv_9_6.pdf).

Unfortunately, we do not have the information on whether the domain of the project, nor on whether the project was an expansion of a pre-existing operation or a new venture. We do also do not have information about rejected projects.

Contributions used for obtaining fixed assets are provided by the Ministry of Economy, contributions in a form of wage costs subsidies in case of newly-created jobs are provided by the Ministry of Labour, Social Affairs and Family, and income tax relief can be claimed from the Ministry of Finance. The aid may also take the form of covering the difference between the value established by expert opinion and the transfer value in cases when there is a transfer or a lease of an immovable property below the value established by the expert opinion. In such cases, the owner of the property (a public administration entity as opposed to the central government) is the provider of the investment aid.

A study based on administrative data showed that, compared to the control group, the population of the unemployed supported within the ALMP scheme the contribution to support the development of local and regional employment had about 15 pp of higher rate of employment even one year later (Petráš 2019). Another study, assessing the effectiveness of various forms of activation activities in the form of voluntary service or minor services for a municipality or self-governing region, found that some forms these particular programmes had even a negative effect on future employment outcomes of the recipients (Petráš 2020).

Including districts that have been designated as LDDs later (Gelnica, Bardejov, Medzilaborce, Košice—okolie, Levoča, Snina, Stropkov, and Michalovce) leads to somewhat noisier estimates but it does not change the conclusions.

A preferable measure of treatment intensity might be investment incentives normalised by the district’s GDP. Given the small size of Slovak districts, these data are unavailable. However, we expect local GDP in the least developed districts to be generally lower than in the more developed districts and hence using the absolute figures would lead to the same conclusions as using the relative measure.

Strictly speaking, we are observing an „inverse Ashenfelter dip” since the original concept referred to an unfavourable development among the treated group, which preceded the intervention.

Importantly, although we only focus on the three-year post-treatment period as the basis of our evaluation of the impact of investment incentives on the regional unemployment levels in order to avoid possible contamination of the results by unrelated factors that might affect our dependent variable (risk of which inevitably increases when examining a longer post-treatment period), the levels of unemployment in treated LDDs remain lower compared to the pre-treatment period even after the third year.

We use data on the number of persons by age (series om7009rr from the Slovak Statistical Office for the period 2018–2019) because data on the size of the labour force are results of interpolations. Encouragingly though, our regression results are similar whether the unemployment rate is computed by the (interpolated) size of the labour force or by this approximation, see robustness checks in the Appendix. The use of the smallest LDDs (Poltár and Sobrance) is to obtain a conservative estimate. The average and median size of the number of persons aged 15–64 in Slovak LDDs over the sampled period is about 40,000 persons.

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Titel: Direct and indirect effects of regional economic stimuli
verfasst von: Matěj Bělín
Ondrej Buchel
Publikationsdatum: 12.10.2023
Verlag: Springer Berlin Heidelberg
Erschienen in: Empirical Economics / Ausgabe 4/2024
Print ISSN: 0377-7332
Elektronische ISSN: 1435-8921
DOI: https://doi.org/10.1007/s00181-023-02506-7

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