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Waste of money or growth opportunity: The causal effect of EU subsidies on Hungarian SMEs

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  • Banai, Ádám
  • Lang, Péter
  • Nagy, Gábor
  • Stancsics, Martin

Abstract

Although EU subsidies aiming at economic development play a pivotal role not only for Hungary but for the entire European Union as well, there is a debate regarding their effectiveness in the literature. This paper investigates the impact of direct economic development subsidies extended in the context of Structural Funds and the Cohesion Fund as part of the 2007–2013 programming period of the European Union on Hungarian micro, small and medium-sized enterprises. Based on a micro database, we evaluate the impact of corporates’ first subsidies on various performance indicators, using a combination of propensity score matching and fixed effects panel regression. According to our results, economic development funds had a significant positive effect on the number of employees, sales revenue, gross value added and, in some cases, operating profit. However, the labour productivity of enterprises was not significantly affected by any of the support schemes. Furthermore, by explicitly comparing non-refundable subsidies (grants) and refundable assistance (financial instruments), we find that there is no significant difference in the effectiveness of the two types of subsidy.

Suggested Citation

  • Banai, Ádám & Lang, Péter & Nagy, Gábor & Stancsics, Martin, 2020. "Waste of money or growth opportunity: The causal effect of EU subsidies on Hungarian SMEs," Economic Systems, Elsevier, vol. 44(1).
  • Handle: RePEc:eee:ecosys:v:44:y:2020:i:1:s0939362518301900
    DOI: 10.1016/j.ecosys.2020.100742
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    References listed on IDEAS

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    More about this item

    Keywords

    Impact evaluation; EU subsidies; Firm-level effects; Propensity score matching; Fixed effects; JEL classification; D04; G38; H25; O22;

    JEL classification:

    • D04 - Microeconomics - - General - - - Microeconomic Policy: Formulation; Implementation; Evaluation
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • O22 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Project Analysis

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