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

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.