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Do R&D Subsidies Stimulate or Displace Private R&D? Evidence from Israel

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  • Lach, Saul

Abstract

In evaluating the effect of an R&D subsidy we need to know what the subsidized firm would have spent on R&D had it not received the subsidy. Using data on Israeli manufacturing firms in the 1990s we find evidence suggesting that the R&D subsidies granted by the Ministry of Industry and Trade greatly stimulated company financed R&D expenditures for small firms but had a negative effect on the R&D of large firms, although not statistically significant. One subsidized New Israeli Shekel (NIS) induces 11 additional NIS of own R&D for the small firms. However, because most subsidies go to the large firms a subsidy of one NIS generates, on average, a statistically insignificant 0.23 additional NIS of company financed R&D. Copyright 2002 by Blackwell Publishing Ltd

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Journal of Industrial Economics.

Volume (Year): 50 (2002)
Issue (Month): 4 (December)
Pages: 369-90

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Handle: RePEc:bla:jindec:v:50:y:2002:i:4:p:369-90

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  1. Paul M Romer, 1999. "Endogenous Technological Change," Levine's Working Paper Archive 2135, David K. Levine.
  2. Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626 National Bureau of Economic Research, Inc.
  3. Paul A. David & Bronwyn H. Hall & Andrew A. Toole, 1999. "Is Public R&D a Complement or Substitute for Private R&D? A Review of the Econometric Evidence," NBER Working Papers 7373, National Bureau of Economic Research, Inc.
  4. Klette, Tor Jakob & M√łen, Jarle, 2011. "R&D investment responses to R&D subsidies: A theoretical analysis and a microeconometric study," Discussion Papers 2011/15, Department of Business and Management Science, Norwegian School of Economics.
  5. Manuel Trajtenberg, 2000. "R&D Policy in Israel: An Overview and Reassessment," NBER Working Papers 7930, National Bureau of Economic Research, Inc.
  6. James J. Heckman, 1995. "Instrumental Variables: A Cautionary Tale," NBER Technical Working Papers 0185, National Bureau of Economic Research, Inc.
  7. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  8. Isabel Busom, 2000. "An Empirical Evaluation of The Effects of R&D Subsidies," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 9(2), pages 111-148.
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