Direct and indirect effects of regional economic stimuli

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.