R&D subsidies and productivity in SMEs

Abstract

This paper examines the effect of R&D subsidies on labour productivity. We use firm-level data on Finnish SMEs from 2000 to 2012 and apply a combined matching and difference-in-differences method to control for selection bias. We find no significant positive effect on labour productivity over the five-year period after a subsidy is granted. However, the results vary over time and indicate a 2–4 % negative effect on SMEs’ annual productivity growth one to 2 years after the subsidy year. Nevertheless, subsidies generate a positive employment effect and enhance firm survival. Additional scrutiny reveals that subsidies positively affect the human capital level of low-skill firms.

Publication Information

Karhunen, H., & Huovari, J. (2015), R&D subsidies and productivity in SMEs, Small business economics, 45(4), 805–823.

• ISSN: 0921-898X
• JEL: D24, O25, O38, C21, L26