European funds and firm performance: Evidence from a natural experiment

Expanding regional eligibility in the access to grants can have important consequences for the performance of firms. We examine a quasi-natural experiment that consisted of a redrawing of administrative areas intended to increase accessibility to European Union (EU) funds using a rich administrative dataset that covers the universe of Portuguese private firms between 2003 and 2010. Our results uncover a positive causal impact of increased eligibility on firms' sales. In contrast, employment and labour productivity do not seem to be significantly impacted by the reform. The effects are heterogeneous: while sales of firms in the services and non-tradable sectors are positively impacted, sales of firms in more competitive sectors are not affected.