European cooperative R&D and firm performance: Evidence based on funding differences in key actions

The Framework programmes created by the European Union are the main financial tools used to support cooperative R&D activities in the EU. Unlike previous empirical studies, this paper suggests that their impact on firms' competitiveness is significant. We analyze industry-oriented research joint ventures supported by the Fifth European Framework Programme between 1998 and 2002. A key feature of this Programme is that funding is available to the firms based on social and economic concerns instead of pure performance criteria, which guarantees that financial support is not granted conditional on technological opportunities. This allows us to identify the causal effect of the programme on firms' performance using the funding available to the firms in their respective industries as a source of exogenous variation in the decision to participate in the programme. Our results suggest that participation in research projects may raise labor productivity by at least 44.4% while it has very limited effect on profit margin.