When do export promotion policies sustain firms’ exports? Evidence on capability building from Scottish SMEs

Abstract Governments invest heavily in export promotion programmes (EPPs), yet we know little about why some interventions generate durable gains while others produce only transient effects. This paper addresses a fundamental puzzle: EPP benefits typically peak several years after intervention and then fade, and firm responses vary markedly. We propose that bundled support across awareness, capability and exploitation (A-C-E) dimensions creates cumulative capabilities sustaining export gains, while isolated interventions build fragile capabilities that erode quickly. Combining international support with business development (BD) assistance creates scope cumulativeness, enhancing absorptive capacity and amplifying effects. Using Scottish firm-level panel data and difference-in-differences estimation addressing treatment heterogeneity, we find three core results. First, bundling drives effectiveness: A-C-E bundling generates 3.1% export gains versus weak transient effects from isolated support, while A-C-E+BD bundling yields 5.9% gains, suggesting both dimension and scope cumulativeness. Second, effects build progressively through capability maturation, peaking around year four before becoming insignificant. Third, absorptive capacity thresholds determine outcomes: small and young firms (10–49 employees, 4–9 years) achieve sustained gains, while micro-firms and start-ups struggle to translate support into lasting capabilities. These findings offer evidence-based policy guidance for navigating fiscal constraints and protectionist pressures through strategic resource allocation.