Regional innovation policy and the performance of small enterprises

Purpose of the study. The paper aims at disentangling the role of a R&D place based policy implemented in the Italian province of Trento, during the period 2002-2007 in spurring R&D investment of private firms and in enhancing the firm performances. Methodology. This paper proposes an investigation based on an original and unique database about the population of limited liabilities firm operating in Trentino. The econometric analysis is based on counterfactual models. In particular, we make use of the Conditional-Difference-in-Differences estimator Findings. We find that R&D incentives positively affect investments in intangible assets and human capital, while they have no effect on firms’ turnover, labor productivity and profitability. Research limits. Two issues are not fully studied in the present paper: the role of micro-complementarities and the role of localized knowledge spillovers. which may well be the main advantage of a place-based policy Practical implications. The results on additionality allow to shed light about the degree of success of the direct measures of public interventions (subsidies). Moreover, the findings can be used to fine tuning the industrial policies. Originality of the study. The context of analysis allows us to disaggregate the different components of R&D spending of firms, namely labor force and its quality, intangibles, fixed assets. Indeed, The study is based on exhaustive information about financial R&D subsidies the population of the firms subsidized during the years 2002-2007 in Trentino matched with the population of limited liabilities firms operating in Trentino during the same time window.