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Firm Subsidies and the Innovation Output: What Can We Learn by Looking at Multiple Investment Inputs?

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  • Marco Cosconati

    (Bank of Italy
    IVASS)

  • Alessandro Sembenelli

    (Università di Torino
    Collegio Carlo Alberto)

Abstract

In this paper we address the issue of if and how firm subsidies foster investment in fixed capital and R&D and by doing so they contribute to the innovation output. We therefore extend the existing literature which so far has mostly focussed on the effects of public subsidies on specific innovation inputs. By using a rich dataset on Italian firms we estimate the relationships between inputs (investments) and innovation outputs (process and product) as well as investment equations in which expected firm subsidies affect the inputs. In order to deal with endogeneity issues we propose an empirical approach which exploits the information and characteristics of our dataset. We find that expected public intervention has an effect on investment in fixed capital and innovation. The impact of firm subsidies on R&D investment is found to be somehow weaker as well as its final effect on innovation.

Suggested Citation

  • Marco Cosconati & Alessandro Sembenelli, 2016. "Firm Subsidies and the Innovation Output: What Can We Learn by Looking at Multiple Investment Inputs?," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 2(1), pages 31-55, March.
    • Handle: RePEc:spr:italej:v:2:y:2016:i:1:d:10.1007_s40797-015-0025-4
    DOI: 10.1007/s40797-015-0025-4
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    More about this item

    Keywords

    Firm subsidies; R&D and fixed investment; Product and process innovation;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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