How well do selective growth policies work?
– Substantial heterogeneity across regions
In both the EU and in Sweden, we have during the last 10–20 years seen an increased interest in selective growth policies, targeting small and medium sized innovative firms. The overarching idea is that this group of firms may both generate positive spillovers to the economy, and are facing difficulties raising capital. Altogether, this motivates support policies targeting this type of firms. But how well do these measures actually work, and do they have the same impact independently of where the targeted firm is located?
In this report we analyse the real effects of two Swedish support schemes (VINN NU and Forska & Väx) both programs are administered by Vinnova, the government agency for innovation. The purpose of these programs is to enhance growth in innovative small and medium sized firms.
This report is focused on analyzing the impact of financial support on firm sales, employment, productivity and relative demand for skilled labour, and how the impact varies with respect to characteristics of the surrounding region.
For knowledge intensive and innovative firms, access to skilled labour is crucial for growth. Hence, when bringing in the regional dimension, special attention is paid to how the regional supply of skilled labour influences the impact of governmental support.
The results of the study can be summarized in the following bullet points.
- In general, employment and turnover tended to decrease in supported firms during the duration of the support program.
- After the program, sales in supported firms developed relatively well whereas employment continued to develop weakly.
- When introducing the regional dimension we found substantial heterogeneity across regions.
- In regions with an abundance of skilled labour, after the program, employment, sales and productivity developed significantly better in supported firms than in other comparable non-supported firms.
- However, in regions where skilled labour was a scarce factor, employment, sales and productivity developed significantly weaker than in comparable non-supported firms.
- In the “average” region, we mostly found no significant effects from the support program.
One conclusion that can be drawn from these results is that if we want to maximize the growth effects of these programs, they should be concentrated to regions abundant in skilled labour. Though we are aware of the fact that it can be difficult to distinguish the post-support impact of program with the impact of being located in a specific region, our results are in line with similar studies performed in other European countries.