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Do Business Subsidies Facilitate Employment Growth?

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  • Heli Koski
  • Mika Pajarinen

Abstract

We use data from 15 508 Finnish companies with 10 or more employees for the years 2003-2008 to explore the relationship between employment growth and three endogenously determined business subsidy types (i.e. employment subsidy, R&D subsidy and the group of other business subsidies). We find a positive contemporary relationship between all business subsidy types and employment growth. In addition, our findings suggest that R&D subsidies further contribute to the firms’ employment for one year after and employment and other subsidies for three years after the reception of subsidies. After that, the differences between the subsidized and non-subsidized firms vanish. We further find in line with previous empirical studies that both product innovation and sales growth from a firm’s old products contribute to the firm’s employment growth. Innovation policy means successfully promoting product innovation should thus produce positive employment effects. Our empirical findings suggest that a positive employment effect of R&D subsidies is rather short-term though, and not likely a result of product innovation generated in the subsidized firms’ R&D projects.

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Bibliographic Info

Paper provided by DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies in its series DRUID Working Papers with number 12-02.

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Date of creation: 2012
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Handle: RePEc:aal:abbswp:12-02

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Web page: http://www.druid.dk/

Related research

Keywords: Public subsidies ; enterprise policy ; industrial policy ; technology policy ; employment ; growth ; Finland;

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References

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  1. Hall, Bronwyn H. & Mairesse, Jacques & Lotti, Francesca, 2006. "Employment, Innovation, and Productivity: Evidence from Italian Microdata," MERIT Working Papers 043, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  2. Brown, Alessio J. G. & Merkl, Christian & Snower, Dennis J., 2007. "Comparing the Effectiveness of Employment Subsidies," IZA Discussion Papers 2835, Institute for the Study of Labor (IZA).
  3. Bettina Peters, 2005. "Employment Effects of Different Innovation Activities: Microeconometric Evidence," Development and Comp Systems 0504002, EconWPA.
  4. Harrison, Rupert & Jaumandreu Balanzo, Jordi & Mairesse, Jacques & Peters, Bettina, 2008. "Does Innovation Stimulate Employment? A Firm-Level Analysis Using Comparable Micro-Data From Four European Countries," ZEW Discussion Papers 08-111, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  5. Doms, Mark & Dunne, Timothy & Roberts, Mark J., 1995. "The role of technology use in the survival and growth of manufacturing plants," International Journal of Industrial Organization, Elsevier, vol. 13(4), pages 523-542, December.
  6. Koski, Heli & Pajarinen, Mika, 2010. "Access to Business Subsidies: What Explains Complementarities and Persistency?," Discussion Papers 1226, The Research Institute of the Finnish Economy.
  7. Brouwer, Erik & Kleinknecht, Alfred & Reijnen, Jeroen O N, 1993. "Employment Growth and Innovation at the Firm Level," Journal of Evolutionary Economics, Springer, vol. 3(2), pages 153-59, May.
  8. Betcherman, Gordon & Daysal, N. Meltem & Pagés, Carmen, 2010. "Do employment subsidies work? Evidence from regionally targeted subsidies in Turkey," Labour Economics, Elsevier, vol. 17(4), pages 710-722, August.
  9. Brouwer, E. & Kleinknecht, Alfred & Reijnen, J.O.N., 1993. "Employment growth and innovation at the firm level," Open Access publications from Tilburg University urn:nbn:nl:ui:12-5662246, Tilburg University.
  10. Thorsten Beck & Asli Demirgüç-Kunt & Vojislav Maksimovic, 2005. "Financial and Legal Constraints to Growth: Does Firm Size Matter?," Journal of Finance, American Finance Association, vol. 60(1), pages 137-177, 02.
  11. Takis Venetoklis & Aki Kangasharju, 2002. "Business Subsidies and Employment of Firms: Overall Evaluation and Regional Extension," Discussion Papers 268, Government Institute for Economic Research Finland (VATT).
  12. Girma, Sourafel & Görg, Holger & Strobl, Eric & Walsh, Frank, 2007. "Creating Jobs Through Public Subsidies: An Empirical Analysis," IZA Discussion Papers 3168, Institute for the Study of Labor (IZA).
  13. Giovanni Dosi & Giorgio Fagiolo & Andrea Roventini, 2008. "The microfoundations of business cycles: an evolutionary, multi-agent model," Journal of Evolutionary Economics, Springer, vol. 18(3), pages 413-432, August.
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Cited by:
  1. Wim Naudé, 2011. "Foreign Aid for Innovation: The Missing Ingredient in Private Sector Development?," Working Papers 2011/35, Maastricht School of Management.

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