Business support policies designed to raise employment and productivity are ubiquitous around the world. We exploit changes in the area-specific eligibility criteria for a major program to support jobs through investment subsidies. Pan-European state aid rules determine whether a sub-national geographical area is eligible for subsidies, and we construct instrumental variables for area (and plant) eligibility based on the estimated parameters of these rule changes. We find areas eligible for business support create significantly more jobs (and reduce unemployment), and this is not due to job displacement between eligible and ineligible areas. An exogenous ten-percentage point increase in an area’s maximum investment subsidy stimulates about a 7% increase in manufacturing employment. The treatment effect exists solely for small firms – large companies appear to “game” the system, accepting subsidies without increasing activity. There are positive effects on net entry of new plants, firm investment but no effects on Total Factor Productivity.

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The Causal Effects of an Industrial Policy

The paper examines the nature, rationale, and logic of the reforms to EU Cohesion Policy. A particular focus of the paper is on the concept of smart specialization and the use of this concept to help facilitate a results-oriented policy agenda. On the one hand, the arguments underpinning the reforms in part relate to modern thinking regarding the role of industrial policy. On the other hand, they also partly relate to advances in our understanding of the relationships between economic geography, technology, and institutions. At the same time, the specific features of the EU context also heavily influence the nature and logic of the changes, whereby legal and institutional matters linking Cohesion Policy to other EU policies all play an important role.

Transforming European regional policy: a results-driven agenda and smart specialization

Effects of EU Regional Policy: 1989-2013

The impact of European Cohesion Policy in urban and rural regions. Regional Studies. This paper presents an evaluation exercise on the impact of European Cohesion Policy on the economic performance of the most disadvantaged European areas (Objective 1 regions) for the programming period 2000–06. By performing the analysis at NUTS-3 rather than NUTS-2 level to exploit the exogeneity of the treatment status in the context of a regression discontinuity design (RDD), the analysis shows that European Cohesion funds have positively contributed to generating economic growth in lagging areas. However, their effect is mainly driven by the successful performance of rural areas close to the main urban agglomerates. Favourable geography and the progressive suburbanization of the rural landscape created new opportunities for rural areas close to cities, thus boosting the effect of the policy.

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The impact of European Cohesion Policy in urban and rural regions

Governments allocate financial resources to support small- and medium-sized enterprises (SMEs) through public subsidies and grants. However, do these public investments help supported firms to increase their performance and growth? We answer this question by conducting a systematic review of evidence in the European Union. We review studies investigating the effects of public grants on firm performance in the European Union’s 28 member countries that were published from 2000 on. We provide a structured overview of 30 studies covering 13 countries. Our review offers information on the methodological approaches, variables and findings of the previous studies. The summarized findings show mostly the positive outcomes of the grants on firm-survival, employment, tangible/fixed assets, sales/turnover, with mixed findings for labour productivity and total factor productivity (TFP). However, we point out that there are significant differences concerning the time period of analysis (investigating short-term vs long-term outcomes), and importantly, the heterogeneity of effects concerning firm size and age, region, industry and intensity of support. Our study offers a series of recommendations for policymakers and researchers.

Public SME grants and firm performance in European Union: A systematic review of empirical evidence

Given the increasing share of the EU budget devoted to Regional Policy, several studies have tried to identify the impact of structural funds on economic growth. However, so far no consensus has been reached. We assess Regional Policy effects through a non-experimental comparison group method, the regression discontinuity design, and a novel regional dataset for the 1994–2006 period. We exploit the allocation rule of EU transfers by comparing regions with a per capita GDP level just below the eligibility threshold (75% of EU average) with those just above. Our findings show a positive impact of EU Regional Policy on economic growth.

Measuring the effects of European Regional Policy on economic growth: A regression discontinuity approach

Do subsidized new firms survive longer? Evidence from a counterfactual approach. Regional Studies. This study provides a statistically robust evaluation of the impact of capital subsidies on the survival of start-ups in Italy. The analysis considers the subsidies provided by the main Italian regional policy, Law 488/1992, during 1996–2009. By exploiting an unusual characteristic of the L. 488 selection process, a quasi-experimental design with high internal validity – the regression discontinuity design – is applied for the first time to the survival analysis. The results show a lower default risk in subsidized start-ups. These findings contradict the view that start-ups receiving L. 488 assistance simply used the grant funding to delay exit.

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Do subsidized new firms survive longer? Evidence from a counterfactual approach

Given the increasing share of the EU budget devoted to Regional Policy, several studies have tried to identify the policy’s contribution to regional economic growth. However, so far no consensus has been reached on the effectiveness of Cohesion policy, due to both limitations in data availability and comparability at regional level, and the difficulties in isolating the effects of the policy from the confounding effect of other factors. The purpose of this paper is to assess the effectiveness of UE Regional Policy, using a counterfactual method - the regression discontinuity design (henceforth RDD) . We exploit the allocation rule of regional UE transfer: regions with a per capita GDP level below 75% of the EU average receive a huge amount of UE structural funds transfers. The sharp RDD is based to the jump in the probability of EU transfer receipt at the 75% cut-off point. Comparing the economic scenario arising under policy interventions with a ‘counterfactual’ situation - what would have happened if the policies were not implemented - we identify the economic effect of European regional interventions and show that they are positive and statistically significant. The most part of the larger growth of Obj. 1 regions in the period 1995-2006 can be attributed to Regional Policy.

Measuring the Impact of the European Regional Policy on Economic Growth

Given the increasing share of the EU budget devoted to Regional Policy, several studies have tried to identify the policys contribution to regional economic growth. However, so far no consensus has been reached on the effectiveness of Cohesion policy, due to both limitations in data availability and comparability at regional level, and the difficulties in isolating the effects of the policy from the confounding effect of other factors. The purpose of this paper is to assess the effectiveness of UE Regional Policy, using a counterfactual method - the regression discontinuity design (henceforth RDD). We exploit the allocation rule of regional UE transfer: regions with a per capita GDP level below 75% of the EU average receive a huge amount of UE structural funds transfers. The sharp RDD is based to the jump in the probability of EU transfer receipt at the 75% cut-off point. Comparing the economic scenario arising under policy interventions with a counterfactual situation - what would have happened if the policies were not implemented - we identify the economic effect of European regional interventions and show that they are positive and statistically significant. The most part of the larger growth of Obj. 1 regions in the period 1995-2006 can be attributed to Regional Policy.

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Teo Muccigrosso

Papers

Measuring the effects of European Regional Policy on economic growth: A regression discontinuity approach

Do subsidized new firms survive longer? Evidence from a counterfactual approach

Measuring the Impact of the European Regional Policy on Economic Growth

Measuring the Impact of the European Regional Policy on Economic Growth: a Regression Discontinuity Design Approach