47. Investment grants and firms’ productivity: how effective is a grant booster shot?

Alexandre, F., Chaves, M., & Portela, M. (2025). Investment grants and firms’ productivity: how effective is a grant booster shot? Small Business Economics, 64(4), 1601–1641. https://doi.org/10.1007/s11187-024-00955-7This study, "Investment grants and firms’ productivity: how effective is a grant booster shot?", examines whether awarding a second investment grant to the same firm improves productivity. Using a Regression Discontinuity Design and administrative data from Portuguese firms applying to the European Regional Development Fund between 2007 and 2018, the authors analyzed impacts on labour productivity, total factor productivity (TFP), investment, employment, and value-added.A single grant increased labour productivity, investment, employment (short-term), and value-added (over 20% after one year), but had no effect on TFP. Micro and small firms benefited most. The second grant—a “booster shot”—yielded even stronger labour productivity gains (around 25% after three years) and a 50% increase in value-added. However, it had limited impact on investment and none on employment or TFP. Results held across robustness checks. The study concludes that repeated grants, especially to micro and small firms, effectively enhance firm performance, especially productivity.