DP13082 European Funds and Firm Dynamics: Estimating Spillovers from Increased Access

Author(s): João Pereira dos Santos, José Tavares
Publication Date: July 2018
Keyword(s): European funds, firm creation, municipalities, quasi-natural experiment
JEL(s): C21, R10
Programme Areas: Public Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=13082

We take advantage of a quasi-natural experiment to assess the impact of European funds on firm dynamics in regions that, while not having their status changed, saw their neighbours increased access to European funds. Causality is established in a difference-in-differences intention to treat setting, using a rich dataset that considers the universe of Portuguese mainland municipalities from 2003 to 2010, and controlling for socio-economic, political and demographic variables. Our findings suggest a causal impact of between 1 and 2 percent in private sector firms´ entry and net entry rates, while we find no impact on firm exit rates. We consider time and space placebos to assure the reliability of our estimates. Our findings suggest that EU regional funds have a greater impact in times of distress, such as the world economic crisis, as far as entry rates are concerned. The analysis of the cross-section of firm demonstrates it is domestic owned micro firms in the primary and tertiary sectors that are most impacted by regional funds.