The effects of EU-funded enterprise grants on firms and workers

Muraközy, Balázs and Telegdy, Álmos ORCID: (2023) The effects of EU-funded enterprise grants on firms and workers. Journal of Comparative Economics, 51 (1). pp. 216-234. DOI

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This paper investigates the effects of non-repayable enterprise grants on Hungarian SMEs, financed from the European Union’s Structural and Cohesion Funds between 2004–2014. Comparing firm- and worker level outcomes of successful and unsuccessful applicants, we find that subsidized firms increase their employment, sales, capital-to-labor ratio and labor productivity, but we find conflicting results for total factor productivity. The skill composition of workers is not affected by the grant, but wages increase, although only for skilled workers and especially managers. These results suggest that the program generates additional investment, but that investment leads to limited technology upgrading at best. According to our simple calculations, the cost of creating an additional job with this program was equivalent to 3 years average wage and each year’s grants contributed to aggregate SME labor productivity growth by 0.2-0.6 percentage points — with an annual cost often in excess of 1 percent of total SME value added.

Item Type:Article
JEL classification:D22 - Firm Behavior: Empirical Analysis
H25 - Business Taxes and Subsidies including sales and value-added (VAT)
I21 - Analysis of Education
O16 - Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
Divisions:Institute of Economics
Subjects:Economic development
Labour economics
ID Code:9701
Deposited By: MTMT SWORD
Deposited On:04 Mar 2024 15:45
Last Modified:04 Mar 2024 15:45

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