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European funds and firm performance: evidence from a natural experiment

Author

Listed:
  • José Mesquita

    (Universidade Nova de Lisboa, Nova School of Business and Economics)

  • João Pereira dos Santos

    (Queen Mary University of London
    ISEG – University of Lisbon, REM/UECE
    IZA – Institute of Labor Economics)

  • José Tavares

    (Universidade Nova de Lisboa, Nova School of Business and Economics
    Centre for Economic Policy Research (CEPR))

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.

Suggested Citation

  • José Mesquita & João Pereira dos Santos & José Tavares, 2025. "European funds and firm performance: evidence from a natural experiment," Small Business Economics, Springer, vol. 65(4), pages 2143-2178, December.
    • Handle: RePEc:kap:sbusec:v:65:y:2025:i:4:d:10.1007_s11187-025-01052-z
    DOI: 10.1007/s11187-025-01052-z
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    Keywords

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    JEL classification:

    • R10 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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