The regional dimension of subsidies, innovation and job growth in european firms

Abstract

The analysis in this chapter reflects on subsidy provision across a sample of European countries from 2005 and assesses the impact of subsidies on the performance outcomes of recipient firms. A key objective of the paper is to explore the regional dimension to identify if firms in rural areas are more likely to receive subsidies and whether performance outcome disparities exist for firms in less urbanized locations. The results of the analysis indicate that subsidies are leading to improvements in firm innovation. The counterfactual analysis indicates that a world without subsidies would result in lower levels of innovation. Subsidized firms are located in less urbanized areas, are larger, foreign, offer training to employees, are better educated, are more high-tech and they export. Regional disparities are evident for subsidized firms that product innovate, however, they are absent for process innovation, pointing to product life cycle regional effects.