On and off the podium: long-term impact evaluation of European R&D Grants on patenting performance

Abstract This study evaluates the impact of the European SME Instrument (SMEi) on patent performance and technological specialization in small and medium-sized enterprises (SMEs). More specifically, using data from Phase 2 of the European program (2014–2018), we compare SMEs that received funding with those that were evaluated as eligible but remained unfunded due to budget constraints. This comparison enables a robust causal analysis of the policy’s long-term effects. By applying entropy balancing and interaction-weighted estimators for dynamic treatment effects, we examine how R&D funding affects not only the scale of patenting but also the quality, novelty, and the technological direction of firms’ innovation activities. First, funded firms statistically decreased their overall patent output, while facing a short-term increase. Second, we observe an increase in technological specialization among funded firms, suggesting that SMEi funding promotes focused R&D efforts. The performance gap between funded and eligible firms narrows down over time, which suggests that eligible firms have a high potential, since they are also capable of advancing their innovation trajectories, albeit at a slower pace in comparison to funded ones. Overall, the results confirm a short-term effectiveness of SMEi grants in stimulating innovation while revealing the latent potential of high-quality, non-funded applicants. These findings contribute to the literature on innovation policy and offer actionable insights for designing complementary innovation support mechanisms that combine financial assistance with broader capability-building interventions capable of sustaining long-term innovation trajectories in SMEs.