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Title : "Who benefits from industrial policy? Evidence fromfirm investment grants"


Abstract : This paper studies the distributionalconsequences of firm investment grants. We exploit Portugal’s PT2020 program, amajor component of the European Union’s Cohesion Policy, which allocatesinvestment support through competitive calls for applications. Usingadministrative data covering the universe of applicants, we compare fundedfirms with unsuccessful applicants within the same call and complement theanalysis with local comparisons around the effective funding cutoff. We findthat investment grants generate substantial increases in capital accumulation,employment, value added, and profitability. Despite

these large firm-level gains, we find littleevidence of changes in workforce composition. Instead, the gains generated byinvestment support are distributed unevenly. Profitability increasessubstantially, while wage gains are concentrated among incumbent workersemployed in high-skill occupations. By contrast, workers employed innon-high-skill occupations experience little wage growth. Finally, largergrants generate additional increases in firm scale and profitability but nocorresponding wage gains for incumbent workers. This contrast indicates thatthe distribution of gains within firms does not scale proportionally with themagnitude of investment support. Overall, our findings indicate that industrialpolicy generates substantial economic gains, but that these gains accruedisproportionately to firm owners and skilled workers.