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

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  • Muraközy, Balázs
  • Telegdy, Álmos

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.

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  • Muraközy, Balázs & Telegdy, Álmos, 2023. "The effects of EU-funded enterprise grants on firms and workers," Journal of Comparative Economics, Elsevier, vol. 51(1), pages 216-234.
    • Handle: RePEc:eee:jcecon:v:51:y:2023:i:1:p:216-234
    DOI: 10.1016/j.jce.2022.09.001
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    Cited by:

    1. Telegdy, Álmos & Tóth, Gábor, 2024. "A támogatott hitelezés hatásvizsgálata Magyarországon [Impact assessment of subsidised loans in Hungary]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(2), pages 113-130.
    2. Martins, Pedro S., 2021. "Employee training and firm performance: Evidence from ESF grant applications," Labour Economics, Elsevier, vol. 72(C).

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    More about this item

    Keywords

    Enterprise grants; EU grants; Worker effects; Matched employer–employee data; Hungary;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure

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