Can large-scale RDI funding stimulate post-crisis recovery growth? Evidence for Finland during COVID-19

The COVID-19 pandemic and subsequent public health restrictions led to a significant slump in economic activities around the globe. This slump has been met by various policy actions to cushion the detrimental socio-economic consequences of the COVID-19 crisis and eventually bring the economy back on track. We provide an ex-ante evaluation of the effectiveness of a massive expansion of RDI funding in Finland to stimulate post-crisis recovery growth through an increase in RDI activities of Finnish firms. We make use of the fact that novel RDI grants for firms in disruptive circumstances granted in 2020 were allocated through established RDI policy channels. This allows us to estimate the structural link between RDI funding and economic growth for Finnish NUTS-3 regions based on pre-COVID-19 data. Estimates are then used to predict regional recovery growth out of sample and to quantify the growth contribution of RDI funding. Depending on the chosen scenario, our out-of-sample predictions point to a mean recovery growth rate of GDP between ~2–4 % in 2021 after a decline of up to −2.5 % in 2020. RDI funding constitutes a significant pillar of the recovery process with mean contributions in terms of GDP growth of between 0.4 and 1 %-points. •Finland massively extended RDI funding to stimulate the economy during COVID-19 crisis.•Regional growth model is used to estimate the RDI funding contribution to recovery.•RDI funding is predicted to lift regional GDP growth rates by 0.4–1 %-points in 2021.•RDI funding is more important for regions outside the typical growth areas.•Forecasts point to recovery growth rates of ~2–4 % for Finnish regions in 2021.