The Role of Location-based Accessibility for the Effectiveness of Startup Subsidies

Start-up companies and their innovative products and services contribute to technological progress. While the importance of local characteristics for innovation activities has been studied extensively, it remains largely unknown to which extent better accessibilities influence innovation in young companies. Startups face a multitude of challenges related to the liability of newness. Therefore, public policies aim at providing support, for example, through start-up subsidies to overcome early-stage financing constraints which may hamper investments and firm development. In this study, we investigate how a startups’ location influences the effectiveness of such public support. We build on detailed data from a country-wide agent-based transport model used to derive local accessibilities for different modes of transport while accounting for road congestion. Theoretically, the link between local accessibility and effectiveness of startup subsidies is ambiguous. Providing support to firms in less accessible regions may be more effective if they help to compensate for the disadvantages of the location. However, targeting support to better accessible places could be more effective if startup and accessibility are complements, i.e., startups can make better use of additional resources in better accessible places.

Results based on detailed information on founder and startup characteristics show that better accessibility, especially better accessibility of R&D work force, indeed increases the effectiveness of subsidies. We find subsidies trigger more additional self-financed R&D additionality when startups have better access to potential (R&D) employees. For non-R&D-related outcomes, local accessibility does not matter.