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Seoul Journal of Economics
[ Article ]
Seoul Journal of Economics - Vol. 38, No. 4, pp.381-403
ISSN: 1225-0279 (Print)
Print publication date 30 Nov 2025
Received 11 Apr 2025 Revised 15 Sep 2025 Accepted 01 Oct 2025
DOI: https://doi.org/10.22904/sje.2025.38.4.002

Effect of government R&D grants on SMEs’ performance in Korea: Synthetic difference-in-difference approach

Hochul Shin ; Hongkee Kim
Hochul Shin (Corresponding author), Department of Economics, Hannam University, (address): 70 Hannamro, Daedeok-Gu, Daejeon, South Korea, Tel: 042 629 7627 s2h3c7@gmail.com
Hongkee Kim, Department of Economics, Hannam University, Daejeon, South Korea

JEL codes: O32, O38, D22

Abstract

This study analyzes the effect of government R&D grants on the performance of small and medium-sized enterprises using Korean firm-level data by employing a synthetic difference-in-differences (DiD) approach. Standard DiD models produce unreliable results due to the violation of the parallel trends assumption between the treatment and control groups. By contrast, the synthetic DiD model suggests that the parallel trends assumption is satisfied, and the estimated effect of government R&D grants on firms’ sales is significant and positive. The grants also significantly increase employment and sales per employee, although they do not have a measurable impact on profitability.

Keywords:

R&D, SMEs, grants, sales, synthetic difference in difference

Acknowledgments

We thank the anonymous reviewer and editor for the detailed and helpful comments.

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