Do subsidies have positive impacts on R&D and innovation activities at the firm level?

In this paper we analyze whether and how “research” and “development” subsidies influence private R&D activity. Our empirical results show that “research” subsidies stimulate R&D spending within firms while “development” subsidies substitute such spending. At the theoretical level we find empirical support for the market failure argument that private R&D expenditure is best stimulated in areas where the gap between the social and the private rate of return to R&D is high. A policy implication is that technology programs should support research projects in the private sector in order to stimulate to more R&D.

[1]  Z. Griliches,et al.  Do Subsidies to Commercial R&D Reduce Market Failures? Microeconomic Evaluation Studies , 1999 .

[2]  Jeffrey M. Wooldridge,et al.  Solutions Manual and Supplementary Materials for Econometric Analysis of Cross Section and Panel Data , 2003 .

[3]  Bronwyn H Hall,et al.  Evaluating the impact of technology development funds in emerging economies: evidence from Latin America , 2008 .

[4]  Adam B. Jaffe,et al.  Building Programme Evaluation into the Design of Public Research‐Support Programmes , 2002 .

[5]  Mette Rye.  Evaluating the Impact of Public Support on Commercial Research and Development Projects , 2002 .

[6]  I. Busom,et al.  Who Participates in R&D Subsidy Programs? The Case of Spanish Manufacturing Firms , 2004 .

[7]  Dirk Czarnitzki,et al.  The Relationship between R&D Collaboration, Subsidies and Patenting Activity: Empirical Evidence from Finland and Germany , 2004 .

[8]  Richard R. Nelson,et al.  On the Sources and Significance of Interindustry Differences in Technological Opportunities , 1995 .

[9]  Katrin Hussinger,et al.  R&D and Subsidies at the Firm Level: An Application of Parametric and Semi-Parametric Two-Step Selection Models , 2008 .

[10]  Daniel A. Levinthal,et al.  Innovation and Learning: The Two Faces of R&D , 1989 .

[11]  Terttu Luukkonen,et al.  Additionality of EU framework programmes , 2000 .

[12]  Katrin Hussinger,et al.  The Link between R&D Subsidies, R&D Spending and Technological Performance , 2004 .

[13]  Daniele Archibugi,et al.  The policy implications of the globalisation of innovation , 1999 .

[14]  T. Klette.  R&D, Scope Economies, and Plant Performance , 1996 .

[15]  W. Arthur,et al.  Increasing Returns and Path Dependence in the Economy , 1996 .

[16]  Reinhard Hujer,et al.  Evaluating the Impacts of Subsidies on Innovation Activities in Germany , 2005 .

[17]  Keith Smith,et al.  Policy learning and innovation theory: an interactive and co-evolving process , 2002 .

[18]  Dirk Czarnitzki,et al.  Additionality of Public R&D Grants in a Transition Economy , 2006 .

[19]  I. Busom,et al.  An Empirical Evaluation of the Effects of R&D Subsidies , 1999 .

[20]  David B. Audretsch,et al.  Innovation and Technological Change , 2003 .

[21]  Andrew A. Toole,et al.  Is Public R&D a Complement or Substitute for Private R&D? A Review of the Econometric Evidence , 1999 .

[22]  R. Berk.  An introduction to sample selection bias in sociological data. , 1983 .

[23]  R. Nelson.  The Simple Economics of Basic Scientific Research , 1959, Journal of Political Economy.

[24]  F. Lichtenberg.  The Relationship between Federal Contract R&D and Company R&D , 1984 .

[25]  J. March.  Exploration and exploitation in organizational learning , 1991, STUDI ORGANIZZATIVI.

[26]  J. Heijs,et al.  THE DISTRIBUTION OF R&D SUBSIDIES AND ITS EFFECT ON THE FINAL OUTCOME OF INNOVATION POLICY , 2004 .

[27]  K. Arrow.  Economic Welfare and the Allocation of Resources for Invention , 1962 .

[28]  Almas Heshmati,et al.  The Impact of Public Funds on Private R&D Investment: New Evidence from a Firm Level Innovation Study ∗ , 2005 .

[29]  Dirk Czarnitzki,et al.  Research and Development in Small and Medium-Sized Enterprises: The Role of Financial Constraints and Public Funding , 2006 .

[30]  Bengt-Åke Lundvall,et al.  Science, Technology, and Innovation Policy , 2006 .

[31]  D. Czarnitzki,et al.  Do Innovation Subsidies Crowd Out Private Investment? Evidence from the German Service Sector , 2002 .

[32]  S. Winter,et al.  Appropriating the Returns from Industrial Research and Development , 1987 .

[33]  F. Lichtenberg.  The Private R&D Investment Response to Federal Design and Technical Competitions , 1988 .

[34]  David B. Audretsch,et al.  Handbook of Entrepreneurship Research , 2005 .

[35]  Jeffrey M. Wooldridge,et al.  Introductory Econometrics: A Modern Approach , 1999 .

[36]  A. Jaffe.  BUILDING PROGRAM EVALUATION INTO THE DESIGN OF PUBLIC RESEARCH SUPPORT PROGRAMS , 2002 .

[37]  Bronwyn H Hall,et al.  Heart of Darkness: Modeling Public-Private Funding Interactions Inside the R&D Black Box , 2000 .

[38]  Bronwyn H Hall.  The Assessment: Technology Policy , 2002 .

[39]  Jordi Jaumandreu,et al.  Barriers to Innovation and Subsidy Effectiveness , 2001 .

[40]  Josh Lerner,et al.  The Government as Venture Capitalist: The Long-Run Impact of the Sbir Program , 1998 .

[41]  Philip G. Berger.  EXPLICIT AND IMPLICIT TAX EFFECTS OF THE RESEARCH-AND-DEVELOPMENT TAX CREDIT , 1993 .

[42]  I. Busom,et al.  Who participates in R&D subsidy programs? , 2004 .

[43]  Christopher F. Baum,et al.  Instrumental Variables and GMM: Estimation and Testing , 2003 .

[44]  S. Wallsten.  The Effects of Government-Industry R&D Programs on Private R&D: The Case of the Small Business Innovation Research Program , 2000 .

[45]  Bronwyn H Hall.  The Financing of Research and Development , 2002 .

[46]  D. Czarnitzki,et al.  Using Innovation Survey Data to Evaluate R&D Policy: The Case of Belgium , 2004 .

[47]  Wesley M. Cohen,et al.  R&D Appropriability, Opportunity, and Market Structure: New Evidence on Some Schumpeterian Hypotheses , 1985 .

[48]  J. Fagerberg,et al.  The Oxford handbook of innovation , 2006 .

[49]  Luke Georghiou,et al.  Evaluating technology programs: tools and methods , 2000 .

[50]  Emmanuel Duguet,et al.  Are R&D Subsidies a Substitute or a Complement to Privately Funded R&D? Evidence from France Using Propensity Score Methods for Non-Experimental Data , 2003 .

[51]  J. Heijs.  Freerider behaviour and the public finance of R&D activities in enterprises: the case of the Spanish low interest credits for R&D , 2003 .

[52]  B. Bernanke,et al.  Employment, Hours, and Earnings in the Depression: an Analysis of Eightmanufacturing Industries , 1985 .

[53]  Rannveig Røste,et al.  The innovation process of the Norwegian electric car Think – a case study , 2004 .

[54]  Access (not) granted: What kinds of firms participate in technology programs? , 2007 .

[55]  Zvi Griliches,et al.  Productivity, R&D, and Basic Research at the Firm Level in the 1970s , 1985 .

[56]  D. Third.  OECD/Eurostat . Oslo Manual-Guidelines for Collecting and Interpreting Technological Innovation Paris, France: , 2005 .

[57]  Saul Lach,et al.  Do R&D Subsidies Stimulate or Displace Private R&D? Evidence from Israel , 2000 .

[58]  D. Czarnitzki,et al.  The Effects of Public R&D Subsidies on Firms' Innovation Activities , 2003 .

[59]  A. Moore,et al.  Facing the Challenge , 2007 .