Grant assistance and small firm development in Northern Ireland and the Republic of Ireland

Small business support is an important element of industrial development po licy in both Northern Ireland and the Republic of Ireland. This paper exami nes the effect of grant support on small business performance from 1991-94. Around 50% of small businesses in Northern Ireland and 30% of small busine sses in the Republic of Ireland received financial support over this period . In Northern Ireland. three clusters of assisted companies were identified received support for marketing, training and capital investments. In the R epublic of Ireland, two assisted clusters of firms were identified who rece ived marketing and training grants. In each case, firms in the assisted clu sters grew faster, tended to be more profitable, were more active in terms of sales and market development and adopted more ambitious strategic direct ions than those in the non-assisted clusters. Selection models are used to explore whether these differences are due to differences in the characteris tics of the assisted and non-assisted groups or can be directly attributed to the effect of government financial support. In the Republic of Ireland t here is no evidence of anl. effective targeting of assistance at better per forming firms. In Northern Ireland, there is some evidence that assistance was targeted at firms with higher productivity growth. Grant aid had no eff ect on either the turnover growth or profitability of small businesses in e ither area. It did however, boost employment growth. This is good-news for job creation but has potentially worrying implications for firms' longer-te rm competitive position through its negative effect on productivity.