Do firms conducting environmental projects funded by European Regional Development Funds perform better in Galicia (Spain)? The role of innovation

This study assesses the effectiveness of regional business innovation policies in the field of environmental and technological development in Galicia (Spain) through the Conecta Peme programme. Financed by the European Regional Development Fund (ERDF) under the regional operational framework, this initiative aimed to strengthen collaboration among SMEs, research centres, and technological partners to enhance innovation capacity and sustainable competitiveness in the Galician economy. The analysis examines the programme’s impact on key firm-level performance indicators, distinguishing between projects with explicit environmental and sustainability objectives and those without such goals. Employing a combined propensity score matching (PSM) and difference-in-differences (DiD) approach, complemented by robustness checks, the study assesses the effects of participation in Conecta Peme on firms’ innovation-related and economic performance indicators. The findings reveal heterogeneous effects across indicators, but no robust evidence of systematically positive impacts on firms’ short-term economic performance, suggesting both the potential and the constraints of regional innovation policies in promoting environmental transformation and economic resilience.