The impact of direct support to R&D and innovation in firms

Direct support of R&D to individual companies, particularly through grants and loans, is a cornerstone of innovation policy. While initially targeted at large firms, the focus of direct measure is now very often on SMEs, and on specific sectors or technologies or – more recently – targeted at societal challenges and to mitigate the adverse financial climate within which firms currently operate. R&D grants and loans are generally simple instruments to implement. They show a range of quantifiable input effects (e.g. increased R&D expenditure) and output effects (e.g. increased turnover with innovation based on R&D and an increased level of invention measured with patents). Evaluations also find a change towards riskier and more ambitious innovation activities supported by direct measures, especially for small and younger firms. However, evaluations struggle to determine the overall effects, especially the less tangible outcomes such as effects on behaviour, skills and capacity, and long-term spillover effects. Also, the ‘average’ success of a programme tends to be based on a small number of successful cases. The chapter finds a crowding-out effect of firm spending on R&D above a subsidisation rate of 20 per cent, and also indicates that, while firms do better with repeated support, especially when linking direct and indirect support, this risks creating a subsidy culture for a few and lack of support for many. Finally, direct support measures perform better when accompanied by a complementary set of services and further support.