European funds and firm performance: evidence from a natural experiment

José Mesquita (), João Pereira dos Santos () and José Tavares ()
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José Mesquita: Universidade Nova de Lisboa, Nova School of Business and Economics
João Pereira dos Santos: Queen Mary University of London
José Tavares: Universidade Nova de Lisboa, Nova School of Business and Economics

Small Business Economics, 2025, vol. 65, issue 4, No 4, 2143-2178

Abstract: Abstract This paper examines the impact of European Union (EU) funds on the performance of private firms. We exploit a quasi-natural experiment arising from an administrative redrawing of geographical boundaries, which led to a discrete change in regional eligibility. This caused a sudden and substantial increase in access to EU grants directed at firms located in 33 Portuguese municipalities. Using a comprehensive linked employer-employee administrative dataset which covers the universe of private firms between 2003 and 2010, our difference-in-differences estimates uncover a significant and positive causal effect of increased eligibility on firms’ sales, labor productivity, and average wages, while employment is not significantly altered. Although firms’ sales in the non-tradable sectors are positively impacted, firms’ sales in more competitive, tradable, sectors remain unaffected by increased access to EU funds.

Keywords: Grants; Regional policy; Private firm; Municipalities; Portugal (search for similar items in EconPapers)
JEL-codes: H25 R10 R30 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s11187-025-01052-z

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