The additionality impact of a matching grant programme for small firms: experimental evidence from Yemen

Matching grants are one of the most common types of private sector development programmes used in developing countries. But government subsidies to private firms can be controversial. A key question is that of additionality: do these programmes get firms to undertake innovative activities that they would not otherwise do, or merely subsidise activities that would take place anyway? Randomised controlled trials (RCTs) can provide the counterfactual needed to answer this question, but efforts to experiment with matching grant programmes have often failed. This article uses an RCT of a matching grant programme for firms in Yemen to demonstrate the feasibility of conducting experiments with well-designed programmes, and to measure the additionality impact. In the first year, the matching grant is found to have led to more product innovation, firms upgrading their accounting systems, marketing more, making more capital investments and being more likely to report their sales grew.