An Impact Evaluation of Public Financial Aid on Economic Development at Macroeconomic and Firm-Level: The Case of Transition Economies

Abstract

During the last three decades, transition economies in Eastern Europe and Central Asia have experienced important structural, institutional, and political reforms under the umbrella of shifting from state socialism to market economies. Although economic progress is polarized within this region, all countries share a common history and characteristics such as underdeveloped capital markets, institutional setups, and higher risks. National and regional public authorities, as well as international development agencies, have granted a significant amount of financial assistance for the improvement of institutional development, business environment, and economic growth in these transition economies. This Ph.D. thesis is dedicated to the study of the role of the various public financial aid instruments for economic growth in the Eastern European and Central Asian countries at macroeconomic and microeconomic levels. We start with an extended literature survey of previous studies evaluating the impact of the European Structural Investment Funds (ESIFs) and Foreign Aid focusing on the region of our interest. Looking at the literature through the four conventional dimensions: empirical framework, outcomes of interest considered, geographical span covered and the determinants of the effectiveness of the funds helped to identify potential areas for further research in the field. In the second chapter, we explore the impact of official development assistance (ODA) and European Structural and Investment Funds on the GDP per capita and its components of member states that joined the EU recently and other neighboring countries. Developing upon the methodology used in Coppola et al. (2018), we undertake an evaluation of the funds’ effects based on a model of their allocation rules, thus dealing with the selection bias inherent in policy evaluation. We consider country-level data for the 1995-2018 period and compare the effect of ODA (before accession) with that of ESIFs (after accession). Estimating a multi-input multioutput distance function, we also separate the impact on GDP per employee (labor productivity) from that on the employment rate. ... [edited by Author]