Regional Selective Assistance in Scotland: does it make a difference to plant performance?

Regional Selective Assistance (RSA) is the largest and oldest business support scheme currently operating in Scotland. It provides grants to firms undertaking capital investment projects in economically deprived EU designated ‘Assisted Areas’. As a component of regional policy, the scheme is principally designed to safeguard and generate employment in the Assisted Areas. Many of the grants are given to help foreign firms to set up in Scotland. The aim of this thesis is to estimate the impact of receipt of these grants on plant performance as measured by productivity and survival.The main econometric problem to be confronted when estimating the impact of grants is self-selection bias. Because plants self-select into the treated group, the treated group will have different characteristics from the untreated group which would lead to differences in performance had neither group received treatment. This creates difficulties in estimating the impact of treatment as a simple comparison of a variable across treated and untreated groups will not measure the causal impact of treatment. This problem was dealt with using propensity score matching and instrumental variables.The dataset was created by linking a register of plants that received an RSA grant into the longitudinal ARD which contains the necessary range of financial variables for empirical analysis. This part of the thesis was crucial as failure to identify a high percentage of plants that received a grant in the ARD would seriously undermine the empirical analyses. In the end, a higher proportion of plants that received a grant were linked with the ARD than has been previously achieved using these databases.In the first empirical chapter, the growth of labour productivity and TFP between 1994 and 2004 in Scottish manufacturing plants was decomposed to reveal the contribution of plants that receive an RSA grant. This showed that RSA-assisted plants made a small but positivecontribution to both measures of productivity growth.The latter two empirical chapters showed that receipt of an RSA grant had no statistically significant impact on either the TFP or the survival probability of Scottish manufacturing plants between 1984 and 2004 in any of the industries considered. This is a major concern as it casts doubt on whether the jobs created and safeguarded by an RSA grant will endure.