Heterogeneous university funding programs and regional firm innovation

This paper estimates the effect of heterogeneous university funding programs within the German Excellence Initiative on a regional firm's probability to innovate by using a multi-valued two-way fixed effects difference-in-differences model. The estimations show that funding an additional Excellence Cluster focused on internationally competitive research within a labor market region increases a regional firm's probability to innovate. This effect is driven by firms within labor market regions receiving a high number of Excellence Clusters. There is no statistically significant effect for receiving a low number of Excellence Clusters. Moreover, we find no consistent statistically significant effect of funding Graduate Schools concentrating on training scientists nor of funding University Strategies promoting the overall long-term plan of a university. •Funding Excellence Clusters within labor market regions increases the innovativeness of firms•The positive effect of funding Excellence Clusters is driven by regions receiving a high dose of Excellence Cluster funding•The positive effect of funding a high dose of Excellence Cluster is economically relevant for individual labor market regions and firms•Funding Graduate Schools or University Strategies does not increase the innovativeness of firms