Institutional Reforms and Employment Effects of Germany’s GRW Investment Grants

Summary

This study examines whether changes to Germany’s GRW investment grant program affected employment in lagging regions. It uses institutional reforms as a source of exogenous variation in funding conditions, then estimates the effects of grants on firm investment and job creation with reduced-form and instrumental-variable regressions. The proposed policy channel runs from higher grant funding to increased firm investment and subsequently to new jobs.

The authors report that grant reforms produced diminishing employment increases when comparing regions whose funding rates were high but declining with those whose rates were low but rising. Small firms responded especially strongly to changing funding conditions. These findings provide evidence about a regional economic policy rather than an investment strategy or financial-market premium. The excerpt does not give sample sizes, effect magnitudes, or details of the identification assumptions, so it is not possible to assess the precision of the estimates or how well the results transfer to other grant programs.

Key ideas

• The study uses institutional reforms to identify changes in GRW investment grant funding.
• Reduced-form and instrumental-variable estimates point to a channel from higher funding to firm investment and job creation.
• Employment increases diminished across the compared funding-rate conditions.
• Small firms were especially responsive to changes in grant funding.
• The excerpt does not report effect sizes or explain the identification assumptions in detail.

Tags

# Institutional reforms and the employment effects of spatially targeted investment grants: The case of Germany's GRW


# Institutional reforms and the employment effects of spatially targeted investment grants: The case of Germany's GRW









Spatially targeted investment grant schemes are a common tool to support firms in lagging regions. We exploit exogenous variations in Germany's main regional policy instrument (GRW) arriving from institutional reforms to analyse local employment effects of investment grants. Findings for reduced-form and IV regressions point to a significant policy channel running from higher funding rates to increased firm-level investments and newly created jobs. When we contrast effects for regions with high but declining funding rates to those with low but rising rates, we find that GRW reforms led to diminishing employment increases. Especially small firms responded to changing funding conditions.

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