# The Impact of Megadeal Subsidies on Local Innovation Government subsidies boost local firms' patent applications. - **Source:** [Journal of Accounting Research](https://onlinelibrary.wiley.com/journal/1475679x) - **Published:** 2026-07-29 - **Topic:** [Business](https://brifing.si/c/business) - **Original article:** - **On Brifing:** https://brifing.si/s/f1a538f8-9905-41c9-b302-0162d06083b6 ## What Are Megadeal Subsidies? Megadeal subsidies are financial incentives provided by governments to large companies to stimulate local economies. These subsidies encourage companies to invest in specific regions. They are particularly aimed at labs, headquarters, and high-tech manufacturing plants. Besides boosting local economies, these subsidies also aim to increase innovation. ## Local Firms' Patent Applications Increase Research shows that local firms' patent applications increase following Megadeal subsidies. This increase is proportional to the innovativeness of the subsidized companies. Additionally, the effect becomes more pronounced as the technological closeness between subsidized and local firms increases. The impact is even stronger when both parties are in the same industry. ## Knowledge Spillovers and Innovation Megadeal subsidies boost local firms' innovation through knowledge spillovers. Inventors from subsidized companies move to local firms, accelerating knowledge transfer. During this process, local firms' citations to subsidized companies' patents increase. Patent similarity also plays a significant role in this process. ## The Role of Universities The presence of universities in regions receiving subsidies further enhances local firms' innovation. Universities serve as important sources of knowledge and talent transfer. This strengthens collaboration between subsidized and local firms. The impact of universities is particularly evident in the high-tech sector. ## Types of Subsidies and Their Effects Subsidies for labs, headquarters, and high-tech manufacturing plants are among the most effective in boosting local innovation. These facilities are critical for knowledge production and transfer. High-tech manufacturing plants, in particular, not only stimulate local economies but also accelerate innovation. ## Technological Closeness and Collaboration Technological closeness between subsidized and local firms is a key factor in innovation growth. Proximity in technology facilitates knowledge transfer. Collaboration between firms in the same sector also speeds up this process. This leads to an increase in local firms' patent applications. ## Inventors Relocating Following Megadeal subsidies, inventors from subsidized companies move to local firms. This process accelerates knowledge transfer and boosts local firms' innovation. The relocation of inventors strengthens the impact of subsidies on the local economy. This also explains the increase in patent applications. ## Conclusion and Importance Megadeal subsidies play a significant role in boosting local firms' innovation. Mechanisms like knowledge spillovers and inventor relocation accelerate this process. The presence of universities and technological closeness further enhance the impact. These findings show that government subsidies not only stimulate local economies but also increase innovation. ## Sources covering this story - https://onlinelibrary.wiley.com/doi/10.1111/1475-679x.70079?af=R — --- _Summary written by Brifing from the original reporting. Copyright in the original article belongs to its publisher; read the full piece at the link above._