• financial constraints
• operating subsidies
• Portugal
• productivity decomposition
• subsidies

This thesis develops the idea of integrating a financial constraint classification into standard aggregate productivity decomposition models. The novelty of this approach resides in the advantage of a more granular picture of resource allocation processes to identify potential causes of inefficiency. We test this intuition on a comprehensive set of firm-level microdata on the Portuguese economy for the 2011-2019 period. The results indicate that the allocative effect of the market (i.e., a stronger between-effect and covariance) operates consistently among financially constrained firms, while a dif- ferent picture emerges for less constrained firms. One possible explanation, which we investigate in the final section of the thesis, concerns the role of operational subsidies. The findings highlight the possibility of a distortive effect of this type of public financial support, questioning its use as a policy instrument.