The long-term effects of R&D subsidies on firm performance: evidence from a regression discontinuity design

Innovation is the most important factor for economic growth, but the government's ability to affect innovation outcome is contested. This paper presents quasi-experimental evidence on the long-term effects of R&D subsidies for small businesses. We use firm level data on Swedish applicants of the Eurostars R&D program during the period 2008–2019. We find that R&D subsidy has a positive and significant effect on turnover, employment and the number of scientific and technology workers. We also find positive effects on export but with some time lags. The effect is stronger on firms that are expected to be financially constrained, such as small and younger firms. We find that the subsidy effect on turnover, employment and export last for more than 7 years after the end of the project, which is consistent with explanations based on long-term channels such as improved competitiveness through the market introduction of innovative products.