The impact of EU grants for research and innovation on firms' performance

The paper evaluates the impact of the European Commission's Seventh Framework Programme (FP7) grants on profit‐oriented firms' post‐treatment performance. Using a quasi‐experimental design and a dataset covering applicants from 46 countries, we find that FP7 grants increase firms' sales and labour productivity by about 18%. However, there is no significant impact on em‐ ployment levels, pointing to potential growth barriers that prevent firms from scaling production despite improved productivity. The effectiveness of these grants varies significantly based on factors such as financial constraints, project risk profiles, market structure, and the innovation environment. Smaller, less productive firms with tighter financial constraints in technology‐ intensive sectors operating in concentrated markets and favourable innovation environments, particularly those undertaking longer and riskier projects, tend to benefit more.