R&D Subsidies and Company Performance: Evidence from Geographic Variation in Government Funding Based on the ERDF Population-Density Rule

Despite the prevalence of R&D support programs, evaluation studies based on explicit differences in support allocation are rare. In this paper, the identification of the causal effect of R&D support on company performance is based on geographic variation in government funding arising from a population-density rule. I find positive impacts on R&D investment, employment, and sales among the participants who were granted an R&D subsidy as a result of additional aggregate R&D support funding in their region. Although there are no instantaneous impacts on productivity, the study provides evidence of long-term productivity gains. © 2014 The President and Fellows of Harvard College and the Massachusetts Institute of Technology