The regional freight transport subsidy (RFTS), as one important component of place-based policy, is used in Sweden. The aim of the Swedish RFTS, is to compensate for the long transport distance between the firms and markets and to stimulate the degree of refinement of the industry in the supported region. Although the Swedish subsidy has existed since 1971, there have been few attempts to examine its impact. To fill this knowledge gap, this study aims at measuring its impact on the performance of firms that have received the support.

Abstract

This study aims to measure the impact the regional freight transport support (RFTS) has had on firms that have received the support.

The outcomes used are turnover, value added and profits per employee. The design of this evaluation poses three separate questions, chosen based on the possibility of having a strong identification. The questions are:

Does an increase in the rate of subsidy have a positive impact on industry performance? To answer the question, the reform which took place in 2007 is used for the identification strategy. In the year of the reform, some municipalities got an increase in the rate of the subsidy while other municipalities got decreased or unchanged rates. A difference-in-difference approach is used and the results indicate that there were no causal effects on the performance of the industry of wood and wood products among municipalities where the subsidy rate increased.

Does the loss of the support have a negative impact on firm performance? For this question, the fact that in the reform in 2000 some municipalities were no longer covered by the subsidy is used to identify the effects. A difference-in-difference approach is used for the analysis and the results suggest that there were no causal effects on firm performance related to the loss of eligibility for the support.

Does increased intensity in the support increase firm performance? For this question, the variation in the intensity of the support is used to identify the effects. A dose-response framework is used for the analysis: the results are that there is a positive and significant impact, of support levels above 80% of the maximum support, on value added. However, the effect is small and is unlikely to be economically significant. No statistically significant effects were found for the other outcomes.

The conclusion of this study is that there is no evidence that the change in the level of transport cost covered, loss of the support, or having more support of the Swedish RFTS had any significant impact on firm performance. As in almost all causal evaluations of effects, there is a trade-off between internal validity and external validity. Thus, RFTS might be important for a limited number of firms, for instance, firms located in areas which were not covered in the analysis. The recommendation is thus that the RFTS should be used with care and needs to be more precise in which firms to target.