This practice presents the counterfactual evaluation method to assess the impact of incentive Schemes aimed to firms in Portugal from 2007 to 2015.
The “Counterfactual Impact Evaluation of the European Structural and Investment Funds on Firm Performance” aimed at estimating the impact of a set of enterprise support mechanisms funded by the EU Cohesion Policy in Portugal in 2007-2013 on several dimensions of the performance of companies. The policy impacts were estimated as the difference between the average performance of treated firms (financially supported firms) and the control group (non-supported firms).
The volume and diversity of company-level data used in this research is unprecedented both nationally and internationally, allowing for a very detailed characterization of firms and the analysis of firm performance in different domains.
Company performance variables were organized in 11 dimensions: investment, growth, financial situation, human resources qualifications, innovation, internationalization, competitiveness, eco-efficiency, gender equality, quality of employment and income distribution within companies.
The results of the estimated impact of financially supported firms were overall positive, suggesting a high effectiveness of the support provided by the enterprise support mechanisms in Portugal funded by the EU Cohesion Policy. Therefore, the main recommendations of the study were to maintain the diversity of instruments used, as well as the high levels of selectivity of beneficiaries and projects, with some minor adjustments on the financial criteria to differentiate from the banking institutions.
Resources needed were a very highly qualification and experience of the consultants and monitoring committee. The contract of the evaluation costs were almost 75,000€, and the cost of the information were around 55,000€. It should be added operation costs of the monitoring committee.
Evidence of success
It aims to demonstrate an example of applying the counterfactual impact evaluation analyses methodology to access a financial support scheme for enterprise investments. This approach is useful answering a central question of “how much difference does” this specific policy makes. The results were that the supported enterprises had: more 8.2 workers, 1.6 workers with high education and 3.3 workers hired without term and more 39,000€ R&D expenditure, 579,000 exports, 376,000 value added.
The challenges that were encountered and surpassed are related to the amount and quality of information required and therefore to the need to gather support from the public official statistics offices. The problem was to suppress information from supported enterprises from data of all enterprises.
Potential for learning or transfer
The approach of counterfactual impact evaluation gave very useful and interpretable information about the impacts of the incentives scheme, but also its cost-effectiveness and additionality, its impacts on non-explicit policy objectives, the sustainability of impacts over time and the heterogeneity of impacts by firm’s initial characteristics. There is also useful information about the matching methods used to identify adequate samples of supported and unsupported firms.
The volume and diversity of firm-level data used is unprecedented both nationally and internationally, allowing for a detailed characterization of firms and the analysis of firm performance.
The results suggest that the policy fulfilled its stated policy goals, contributing to improve the performance of supported firms in areas such as: investment in fixed capital, human capital, innovation, internationalization, and competitiveness.
This counterfactual evaluation is a proof of the applicability of these methods.