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Public SME grants and firm performance in European Union: A systematic review of empirical evidence

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Abstract

Governments allocate financial resources to support small- and medium-sized enterprises (SMEs) through public subsidies and grants. However, do these public investments help supported firms to increase their performance and growth? We answer this question by conducting a systematic review of evidence in the European Union. We review studies investigating the effects of public grants on firm performance in the European Union’s 28 member countries that were published from 2000 on. We provide a structured overview of 30 studies covering 13 countries. Our review offers information on the methodological approaches, variables and findings of the previous studies. The summarized findings show mostly the positive outcomes of the grants on firm-survival, employment, tangible/fixed assets, sales/turnover, with mixed findings for labour productivity and total factor productivity (TFP). However, we point out that there are significant differences concerning the time period of analysis (investigating short-term vs long-term outcomes), and importantly, the heterogeneity of effects concerning firm size and age, region, industry and intensity of support. Our study offers a series of recommendations for policymakers and researchers.

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Notes

  1. Based on the three waves (2005, 2010 and 2015) of the European Survey on Working Conditions (EWCS).

  2. General Block Exemption Regulation 651/2014 declared certain categories of aid compatible with the internal market. Regional aid and aid for SMEs were the first two categories mentioned (European Commission 2014).

  3. However, it is worth noting that there are also large common EU entrepreneurship support programmes such as Competitiveness and Innovation Framework Programme (2007–2013) and COSME Programme (2014–2020), for details we refer to European Commission website (2019).

  4. Most of the state aid for SMEs is ‘minimis’ aid, defined as small amounts of state aid to firms about which the EU countries do not have to notify the European Commission (European Commission 2006).

  5. In contrast, Spengel et al. (2015) show that tax incentives to support SMEs in the EU cover a large variety of instruments, which makes the results difficult to compare.

  6. The concept of behavioural/output additionality has been described, for example, in works of Söderblom et al. (2015); McKenzie et al. (2017) or Čadil (2019).

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Acknowledgements

The authors would like to thank Norin Arshed, Daniele Bondonio, Marc Cowling, David McKenzie, and David Storey for their helpful and encouraging comments and suggestions on the methodology and code. The authors are also grateful for the comments of both reviewers and the associate editor Saul Estrin.

Funding

This work was supported by the Internal Grant Agency of the Faculty of Business Administration, University of Economics, Prague under grant no. IP300040.

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Correspondence to Ondřej Dvouletý.

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Appendix: Search code.

Appendix: Search code.

(anywhere)

TS = (SME grant OR small firm* grant OR BUSINESS grant OR FIRM grant OR ENTERPRISE grant OR SME subsid OR small firm* subsid OR BUSINESS subsid OR FIRM subsid OR ENTERPRISE subsid OR SME support OR small firm* support OR BUSINESS support OR FIRM support OR ENTERPRISE support OR supported SME OR supported small firm* OR supported BUSINESS OR supported FIRM OR industrial policy OR state aid OR EU subsid OR EU programme OR policy instrument OR business start-up support OR Voucher)

AND

CU = (Austria* OR Italy* OR Belgium* OR Latvia* OR Bulgaria* OR Lithuania* OR Croatia* OR Luxembourg* OR Cyprus* OR Malta* OR Czechia* OR Czech Republic* OR Netherlands* OR Holand* OR Denmark* OR Poland* OR Estonia* OR Portugal* OR Finland* OR Romania* OR France* OR Slovakia* OR Germany* OR Slovenia* OR Greece* OR Spain* OR Hungary* OR Sweden* OR Ireland* OR United Kingdom* OR European Union OR EU)

AND

TS = (micro firm OR micro business OR micro enterprise OR micro compan OR small firm OR small business OR small enterprise OR small firm OR small compan OR SME OR Small and medium-sized enterprise OR Medium-sized business OR Medium-sized firm OR Medium-sized enterprise OR Medium-sized firm OR Medium-sized compan)

AND

TS = (firm performance OR productivity OR profit* OR employment OR revenue* OR turnover OR sales OR value added OR return* to capital OR investment OR assets OR production capacity OR firm size)

AND

TS = (experiment OR field experiment OR randomized evaluation OR random* OR impact evaluation OR impact assessment OR counterfactual evaluation OR propensity score OR regression discontinuity OR diff-in-diff OR difference-in-differences OR difference in differences OR instrumental variable* OR identification strategy OR impact on OR impact of OR causal effect OR evidence OR value for money evaluation OR VFM evaluation OR Cost Benefit Analysis OR CBA Analysis OR matching OR synthetic control methods).

Source: Own work initially inspired by Kersten et al. (2017, p. 348).

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Dvouletý, O., Srhoj, S. & Pantea, S. Public SME grants and firm performance in European Union: A systematic review of empirical evidence. Small Bus Econ 57, 243–263 (2021). https://doi.org/10.1007/s11187-019-00306-x

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  • DOI: https://doi.org/10.1007/s11187-019-00306-x

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