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Darryl R. Holden and J. Kim Swales' assertion that the effectiveness of subsidies is limited by various financial constraints is incorrect. Such an observation can only be valid in a homogenous production scenario. Moreover, a recent study reveals that the effectiveness of subsidies increases with the marginal cost of private funds and is higher in companies encountering financial constraints. The finding supports the observation that smaller firms benefit more from subsidies than larger ones.

Regional policy instruments and industrial subsidies in the UK are analyzed using regression analysis to determine the time profile of assisted employment up to five years from the date it was given. The results show that both build-up and duration of subsidy-induced jobs vary between the form of assistance and the company receiving it. Assistance is ineffective in general among larger firms and whatever jobs manage accumulate are eventually lost at high rates.

ABSTRACT The paper implements a methodology for assessing the regional impact of investment grants on foreign direct investment (FDI) location, taking data for U.K. regional policy over the period 1985-2005. Using a Generalized Methods of Moments estimator it finds that each £25 million of grant changes the regional location of about six inward FDI projects. On average, projects have 150 jobs and each job diverted costs £27,500 (1995 prices). It also finds that the size of the area designated for grants has a positive location effect. The effect is small in relation to the overall scale of FDI, which may explain the weak grant effect found in recent plant-based location studies. [ABSTRACT FROM AUTHOR]