Public support for firms in lagging regions-evaluation of innovation subsidy in Slovakia

This article evaluates effectiveness of EU regional policy-promoting innovation and competitiveness aimed at direct support of private companies in less developed EU regions in Slovakia. By using unique set of firm microdata, we test the effectiveness of this measure with panel data fixed estimator within the framework of Cobb-Douglas production function. We found positive and significant impact on labour productivity that disappears shortly after 1 year following subsidy allocation. By specifying the optimal amount of aid, we find that majority of supported firms could benefit from bigger subsidy size, thus justifying a call for 'more music for more money' policy.