Sector heterogeneity and dynamic effects of innovation subsidies: Evidence from Horizon 2020 |
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| Affiliation: | 1. Waseda Business School, Japan;2. University of Zurich, Switzerland; Copenhagen Business School; Centre for European Economic Research and IZA-Institute of Labor Economics;3. Economic Policy, Analysis and Consulting, Denmark;1. Questrom School of Business, Boston University, United States;2. Harvard Business School, United States;1. Strategic Organization Design Unit, University of Southern Denmark, Denmark;2. Bliss – Digital Impact Lab, Ca'' Foscari University, Italy;3. Department of Management, Ca'' Foscari University, Italy;1. Aspen Global Change Institute, 104 Midland Avenue, Ste. 205 Basalt, CO 81621, USA;2. Graham Sustainability Institute, University of Michigan, 625 E Liberty Street, 48104, USA |
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| Abstract: | We evaluate the effect of a pan-European innovation funding program on firm growth and innovative output. Using a difference-in-differences estimation on a sample of matched firms, we find that subsidized firms are able to invest more in tangible and intangible assets, achieve higher growth of turnover and employment, and file more patent applications. We then analyze the dynamic treatment effect and find that the effects of subsidization tend to get stronger over time. Moreover, our findings indicate that the effect of subsidization is highly heterogeneous across sectors with different R&D or knowledge intensity and level of competition. Finally, we explore some economic channels to explain how subsidies generate strong effects on firm performance. We show that subsidized firms are able to generate more internal financing and attract more long-term borrowing after receiving the subsidy, yet we find no evidence that subsidized firms are able to attract more external equity financing than similar unsubsidized firms. |
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| Keywords: | Subsidies Innovation Policy evaluation Difference-in-difference estimation Sectors |
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