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

Balazs Murakozy and Almos Telegdy

Journal of Comparative Economics, 2023, vol. 51, issue 1, 216-234

Abstract: 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.

Keywords: Enterprise grants; EU grants; Worker effects; Matched employer–employee data; Hungary (search for similar items in EconPapers)
JEL-codes: D22 H25 J21 O16 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Working Paper: The Effects of EU-Funded Enterprise Grants on Firms and Workers (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jcecon:v:51:y:2023:i:1:p:216-234

DOI: 10.1016/j.jce.2022.09.001

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