Geographic Proximity to the European Commission and the Likelihood to Be Granted With a Subsidy From the EU

Abstract

In this paper we analyze the effect of geographic proximity to the European Commission (EC) in Brussels on the likelihood of being granted with an innovation subsidy from the European Union (EU). The data utilized comprehends the time period 2006–2014 for innovation active companies within the Belgian region of Flanders that is adjacent to Brussels which accommodates EU authorities. We find evidence that companies located closer to the EC are more likely to receive an innovation subsidy from the EU. This result suggests that geographic proximity, which can be closely linked to opportunities for lobbying and networking, can play a role in the subsidy framework. Companies located closer will have lower costs in interacting with the EU authorities and gathering tacit knowledge. Thus, they will suffer less under information asymmetry and gain an advantage compared to peers located farther away. In addition, we test whether focal companies’ group members located closer to the EC exert a positive effect on the likelihood of being granted for the focal company. We do not find evidence for such an effect, indicating that knowledge potentially gathered by a group member does not lead to an increase in focal companies’ subsidy receipt likelihood. Placebo tests utilizing alternative subsidy granting authorities in Brussels confirm our expectation that geographic proximity loses its importance when authorities are considered which are not heavily in focus of lobbying and networking parties compared to EU authorities.