How Disaggregation Helps Policy Evaluation
Abstract:
This work develops the idea of integrating a financial constraint classification into standard aggregate productivity decomposition models. The novelty of this approach resides in the advantage of a more granular picture of resource allocation processes to identify potential causes of inefficiency. We test this intuition on a comprehensive set of firm-level microdata on the Portuguese economy for the 2011-2019 period. The results indicate that the allocative effect of the market (i.e., a stronger between-effect and covariance) operates consistently among financially constrained firms, while a different picture emerges for less constrained firms. We investigate the role of operational subsidies via IV regression, propensity score matching and difference-in-differences, in order to find a potential transmission mechanism explaining different productivity patterns. The findings highlight the possibility of a distortive effect of this type of public financial support, questioning its use as a policy instrument. As a research proposal, we would like to analyze the possible differences among financial constraint categories by means of functional clustering, focusing on how productivity curves evolve over time and addressing their potential sources.