R&D subsidies and productivity in SMEs
- 798 Downloads
This paper examines the effect of R&D subsidies on labour productivity. We use firm-level data on Finnish SMEs from 2000 to 2012 and apply a combined matching and difference-in-differences method to control for selection bias. We find no significant positive effect on labour productivity over the five-year period after a subsidy is granted. However, the results vary over time and indicate a 2–4 % negative effect on SMEs’ annual productivity growth one to 2 years after the subsidy year. Nevertheless, subsidies generate a positive employment effect and enhance firm survival. Additional scrutiny reveals that subsidies positively affect the human capital level of low-skill firms.
KeywordsProductivity Subsidies R&D SMEs Industrial policy Conditional difference-in-differences
JEL ClassificationsD24 O25 O38 C21 L26
We are grateful to Mika Haapanen, Mika Maliranta, Ari Hyytinen, Jaakko Pehkonen, Hannu Tervo, Petri Böckerman and Terhi Maczulskij for their helpful comments. We thank the editor and two anonymous reviewers for their constructive suggestions, which helped us to improve the manuscript. We would also like to thank Tekes and Statistics Finland for their help with the data, which were made available through remote access. Karhunen gratefully acknowledges the financial support from the Alfred Kordelin Foundation, the Yrjö Jahnsson Foundation (Grant number 6029) and the University of Jyväskylä. The usual disclaimer applies.
- Arrow, K. (1962). Economic welfare and the allocation of resources for invention. In R. Nelson (Ed.), The rate and direction of inventive activity: economic and social factors (pp. 609–626). Princeton: Princeton University Press.Google Scholar
- Becker, S. O., Egger, P. H., & Von Ehrlich, M. (2013). Absorptive capacity and the growth and investment effects of regional transfers: A regression discontinuity design with heterogeneous treatment effects. American Economic Journal: Economic Policy, 5(4), 29–77. doi: 10.1257/pol.5.4.29.Google Scholar
- Fisher, P., & Ciani, E. (2014). Dif-in-dif estimators of multiplicative treatment effects (No. 2014-14). Institute for Social and Economic Research.Google Scholar
- Hall, B. H., Mairesse, J., & Mohnen, P. (2010). Measuring the Returns to R&D. In: Hall, B. H., & Rosenberg, N. (Eds.) Handbook of the Economics of Innovation, 2, 1033–1082. doi: 10.1016/S0169-7218(10)02008-3.
- Wallsten, S. J. (2000). The effect of government-industry R&D programs on private R&D: The case of the small business innovation research program. RAND Journal of Economics, 31(1), 82–100. Retrieved from http://www.jstor.org/stable/2601030.