Government subsidies have a positive impact on firm survival

What is it about?

When the COVID-19 pandemic struck, governments around the world rushed to support struggling businesses with emergency subsidies. In Senegal, the government created a special fund to help companies survive the economic shock. But did this financial aid work? Our study set out to answer this question by analyzing real-world data from over 800 companies across different sectors in Senegal. We used a method called propensity score matching, which allows us to fairly compare companies that received support to those that did not, while accounting for their differences. This helps isolate the true effect of the government aid. What we found was a mixed picture. On one hand, companies that received subsidies were more likely to survive the immediate crisis. The aid helped them stay open and avoid shutting down during lockdowns and disruptions. On the other hand, the same aid did not boost — and in some cases may have worsened — their sales performance. This may be because subsidies allowed companies to continue operating even when consumer demand had fallen, or because it unintentionally distorted competition. In simple terms: the aid helped firms survive, but didn’t necessarily help them succeed during the pandemic. These findings matter because they show that emergency financial help, while crucial in the short term, may not be enough on its own. Policymakers need to go further — designing support programs that not only prevent closures but also help businesses recover, adapt, and grow after the crisis. Our research highlights the importance of tailoring aid to the real needs of firms, especially small and medium-sized ones in developing countries like Senegal.

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Photo by Markus Winkler on Unsplash

Photo by Markus Winkler on Unsplash

Why is it important?

What makes our study particularly unique and timely is that it focuses on a developing country context — Senegal — during one of the most disruptive global crises in recent history: the COVID-19 pandemic. While many studies on government support programs have focused on wealthy or industrialized nations, there has been far less evidence on how such policies work in low- and middle-income countries, where informal employment and financial vulnerability are widespread. Our study is one of the first to rigorously evaluate the real impact of government subsidies on business outcomes in Senegal using a scientifically robust approach (propensity score matching). We used rich, gender-disaggregated data from over 800 firms collected in the early phase of the pandemic. This allowed us to assess not only whether companies survived, but also whether they managed to sustain their sales — a critical but often overlooked indicator of business health. What we found challenged common assumptions: survival did improve with aid, but sales performance did not. This raises important questions about how emergency policies are designed, especially in fragile economies with a large informal sector. At a time when governments and donors are planning for future crises and designing resilience strategies, our research offers evidence-based insights to help craft smarter, more effective policies. It calls for a more targeted and balanced approach to business aid that can both save jobs in the short term and promote sustainable recovery in the long run.

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