State Aid Impact on Central and Eastern Europe Economies

Abstract

State aid is a fairly common phenomenon in the European Union, and, in the context of the COVID-19 pandemic, the number of companies receiving state aid has even increased. However, scientific research confirms that, depending on the macroeconomic, political and social situation as well as on industry specifics, state aid can have a dual effect - positive or negative. To date, there is no clear answer to the question of what impact and under which conditions state aid has on national economies in the long run. This article contributes to filling a gap in the literature because to date researchers have focused on the cases of large, heavily populated European Union countries, but the research into the impact of state aid on the Central and Eastern EU economies, where the level of state aid as percentage of GDP is higher than the EU average, is still scarce. In addition, the mixed results obtained in previous studies caused confusion over the effects of state aid and its relevance for economic development. In our research, we applied correlation analysis, Granger causality test, ARDL, PTR models and evaluation of multipliers for the analysis of the panel data set representing 11 Central and Eastern EU countries over a 20-year period (from 2000 to 2019). We found that state aid does not promote economic development in most Сentral and Eastern EU countries under certain conditions in the long term. This paper contributes to a deeper understanding of the state aid-economic development relationship at the national level in the Central and Eastern Europe and has implications for policy makers.