R&D subsidies and productivity in SMEs
- First Online:
- 669 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
- 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.