Association for Public Policy Analysis & Management

Small Business Innovation Research Program (SBIR) is one of the federal programs aiming to support small business research and development (R&D) and technological innovation across in the United States. Despite studies have shown the effectiveness of the federal program in supporting innovation, entrepreneurship and employment growth in metropolitan areas, little efforts have been made to examine its effect in small and rural regions. Thus, this research study intends to fill this gap in the literature and examines the effect of the SBIR program on innovation, employment and business formation in small metros and non-metro counties using panel data fixed effect models. This study also explores the extent to which its effect is different from that of large metro regions. Based on the regression results, it is suggested that the number of companies awarded SBIR fund are negatively associated with both innovation and employment. It implies possible crowding-out effect of such public investment fund. The results also indicate that the program effects are different across large metros, small metros and non-metro counties. Policy implications on supporting non-metropolitan innovation agenda are discussed based on the results. In summary, this study shows that small and non-metro innovation are still possible and public policies can play an important and positive role. Local policy makers should be encouraged to seek for more alternative development strategies other than tax incentives to improve economic development. Innovation programs and public R&D in small and rural areas should focus more on cultivating local resources to meet the local need.