R&D subsidies boost firm survival in Southern Italy

The paper estimates the causal impact of regional R&D subsidies, finding that treated firms were 12 percent less likely to exit the sample compared to eligible but unsubsidized control firms.

The policy successfully stimulated additional investments in intangible assets, with treated firms increasing these by more than seven times, a sizable effect even after accounting for outliers.

Furthermore, the subsidies had positive effects on the number of workers employed in recipient firms.

However, the study found no significant impact on tangible assets, the value of production, or overall productivity.

This suggests that while the policy fostered growth in specific areas, it did not translate into broader efficiency gains.

The analysis leveraged firms' balance sheets and a unique regional administrative dataset on subsidy payments, employing a match-in-diff approach to ensure robust causal impact estimation.

The policy, titled 'Aid to research investments of SMEs,' was implemented by the Apulia region in Southern Italy in 2008, in the aftermath of the Great Recession.

It aimed to stimulate innovation investments in small and medium firms, co-financed by the European Regional Development Fund (ERDF) to reduce regional development gaps.

Apulia's GDP per capita was approximately one-third lower than the Italian average between 2005-2007.

The initial budget of €28 million was later raised to €48 million, targeting SMEs in most sectors, excluding primary and some manufacturing activities.

This amount represented roughly 32 percent of total intangible asset investments by Apulian SMEs during 2005-2007.