Do European Funds support the formation of firms? New evidence from Italy

During the Great Recession, European Cohesion Policy had an important countercyclical function. It contributed to resilience and supported economic development at the local level. This paper investigates spatial variation in new firm formation in Italy and studies the role of the European Regional Development Fund (ERDF) in the period 2007-2013. Our analysis confirms that per capita expenditure of EU funds is positively and significantly correlated with new firm formation in the aftermath of the international crisis. In line with the existing literature, the analysis confirms that formal education, unemployment, and the size of the regional economy are important drivers in new business formation. Our findings differ partially from the existing literature as regards the implications of firm size and industrial specialization. Service-oriented provinces and areas dominated by large and medium-sized firms are more likely to foster entrepreneurial capacity, presumably due to spin-offs and the effects on the network of suppliers.