This paper explores whether the evaluation of business support interventions could be improved by taking into account the wider economic impact on growth. For example, the extent to which those businesses receiving support grow at the direct expense of rival and more productive businesses.
The focus of Government economic policy is on improving UK growth and productivity. This often includes providing business support to overcome specific market barriers and so improving the productivity of supported businesses. However, there have been concerns about the extent to which such interventions generate additional indirect, economic impacts, some potentially negative, compared to a situation where there was no intervention. This is because firms that receive such support can benefit at the expense of other firms, for example, as a result of displacement, or the reallocation of productive resources from other firms to the firms supported by the intervention. Yet, it should be noted that there can also be indirect effects that have positive impacts: spillovers from innovation or the clustering of economic activity can provide benefits to firms beyond those directly supported.
While the application of current evaluation methodology can lead to accurate estimates of firm level impacts of government intervention (through measuring changes in scale of the firm such as employment or turnover), there has been uncertainty about how to accommodate wider-economy effects such as displacement and spillovers. This raises questions about whether the overall impact of business support interventions is estimated.
This paper focuses on the quantitative analysis of displacement. Approaches to evaluating spillovers are also discussed, through a qualitative review