From funding to competitiveness: the innovation effects of public support in European Union SMEs

Purpose This study aims to examine how public financial support for innovative activity translates into SMEs’ innovation outcomes and competitiveness. Building on an additionality-based framework, we distinguish conventional policy effects: input additionality (R&D investment) and output additionality (innovation sales) and an entrepreneurial ecosystem channel, captured by behavioural additionality (network connectivity through innovation co-operation). We also investigate the interrelation between these three effects. Finally, we theorize that they jointly underpin competitiveness additionality (downstream market-performance effects). Design/methodology/approach Using the Community Innovation Survey (CIS) 2016–2018 anonymized microdata sample of n = 84,115 SMEs from 12 European Union countries, we estimate a path model linking public funding to R&D investment, innovation co-operation (conceptualized as an entrepreneurial ecosystem mechanism) and innovation performance. A multi-group analysis comparing exporting and non-exporting SMEs is performed. Findings Public funding is associated with higher SMEs innovation performance (output additionality), R&D investment (input additionality) and greater engagement in innovation partnerships (behavioural additionality), with the latter two positively influencing output additionality. These patterns hold for both exporters and non-exporters, but the strength of these channels differs. Exporters show a more pronounced co-operation-based (connectivity) pathway, whereas non-exporters exhibit stronger knowledge/technology acquisition, indicating heterogeneous, funding-induced capability-building routes through which policy activates ecosystem mechanisms. Originality/value The study integrates an additionality perspective on the effects of public support with an entrepreneurial ecosystem lens by positioning behavioural additionality as an entrepreneurial ecosystem mechanism as well as by extending this logic toward competitiveness additionality. The results suggest that innovation support for exporting SMEs should prioritise network-building instruments, while non-exporters benefit more from knowledge acquisition support, pointing to the need for fit-for-purpose policy design.