Firm participation in financial incentive programmes: The case of subsidies for outward internationalisation

This study explores the process of firms' participation in financial subsidies supporting outward foreign direct investments. Policy makers should be concerned about the existence of self-selection mechanisms among eligible firms as they could fail to reach the target population. Using firm-level data on subsidised firms and potential applicants, we show that firms self-select according to the balance between application costs and expected benefits. These findings have interesting policy implications. First, participation rate among the target group could be enhanced by lowering application costs. Second, in order to avoid deadweight effects, expected benefits should carry a higher value for target firms.