COVID-19 financial aid and productivity: has support been well spent?

In the EU, this support has prevented the emergence of unemployment and has kept average employment high.

Publishing date: 04 November 2021
Authors: Carlo Altomonte Lionel Fontagné Maria Demertzis Steffen Müller

This Policy Contribution is an output from the MICROPROD project, which received funding from the European Union’s Horizon 2020 research and innovation programme under grant agreement no. 822390.

The authors thank colleagues at Bruegel for valuable comments and suggestions. Lionel Jeanrenaud and Maddalena Conte provided valuable research assistance. Opinions are those of the authors.

Most European Union countries have made good progress with vaccinating their populations against COVID-19 and are now seeing a rebound in economic activity. While the scarring effects of the crisis and the long-term implications of the pandemic are only partially understood, the effects of support given to firms can be evaluated in order to help plan the removal of crisis support.

European regions and countries that depend heavily on services requiring physical proximity have been hit hardest by COVID-19-related measures. But these services sectors tend also to be the smallest and least-productive in any economy, implying that, coming into the crisis, the highest shares of zombie firms were in these sectors. Reliance on physical proximity and the higher incidence of zombies to start with have combined to make those services-dependent economies particularly vulnerable to any attempt to remove the support put in place during the pandemic.

The evidence shows that the main goal of the provision of support during the COVID-19 crisis, namely to protect employment, has been achieved. However, the evidence is varied on how efficiently this was done, in terms of helping firms that have a good chance of surviving, while not supporting those that will in any case exit.

An analysis of France, Germany and Italy shows the potential for ‘cleansing effects’ in that it was the least-productive firms that have been affected most by the crisis. While support was generally not targeted at protecting good firms only, financial support went by and large to those with the capacity to survive and succeed. Labour schemes have been effective in protecting employment.

Recommended citation:

Altomonte, C., M. Demertzis, L. Fontagné and S. Mueller (2021) ‘COVID-19 financial aid and productivity: has support been well spent?’ Policy Contribution 21/2021, Bruegel

About the authors

Carlo Altomonte

Carlo Altomonte is Professor of Economics of European Integration at the Social and Political Sciences Department of Bocconi University, and a core faculty member of SDA Bocconi School of Management, where he teaches International Business Environment. He has received the SDA Bocconi Teaching Excellence Award in 2007 and the Bocconi Teaching Innovation Award in 2016. He has been a founder, and the first Director, of the World Bachelor in Business, a unique undergraduate triple degree in Business jointly developed by Bocconi University, the University of Southern California and the Hong Kong University of Science and Technology.

He is currently the Director of the Globalization and Industry Dynamics unit at the Baffi-Carefin centre of research of Bocconi University, a Non Resident Fellow at Bruegel, a EU think tank, and a Senior Researcher at ISPI, the Italian centre of Studies on International Politics. He has been visiting scholar at the Centre of Economic Performance of the London School of Economics and at the Research Department of the European Central Bank. He has been a visiting professor at the Paris School of Economics (Panthèon-Sorbonne, Paris, France) and KU Leuven (Belgium), and has held short teaching courses at the Wagner School of Government (NYU, New York), Keio University (Tokyo), Fudan University and CEIBS (Shanghai) among others.

He has been regularly acting as consultant for a number of national and international institutions, including the Italian Government, the United Nations (UNCTAD), the European Parliament, the European Commission and the European Central Bank, analysing the role of international trade and investment and their implication for competitiveness.

His main areas of research and publication are international trade and investment, the political economy of globalization and its implication on competitiveness. He has published in several leading academic journals, among which Journal of Industrial Economics, European Economic Review, Economic Policy, International Journal of Industrial Organization, Journal of Economic Geography, Journal of International Business Studies, Oxford Bulletin of Economics and Statistics.
Lionel Fontagné
Maria Demertzis

Maria Demertzis is a Senior fellow at Bruegel and part-time Professor of Economic Policy at the Florence School of Transnational Governance at the European University Institute. She was Bruegel’s Deputy Director until December 2022. She has previously worked at the European Commission and the research department of the Dutch Central Bank. She has also held academic positions at the Harvard Kennedy School of Government in the USA and the University of Strathclyde in the UK, from where she holds a PhD in economics. She has published extensively in international academic journals and contributed regular policy inputs to both the European Commission's and the Dutch Central Bank's policy outlets. She contributes regularly to national and international press and has regular column that appears twice a month in various EU newspapers and on Bruegel’s opinion page.
Steffen Müller

Theme: Macroeconomic policy and governance Banking and capital markets
Keyword: financial crisis eu governance Covid-19
Language: English