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The Financing of Research and Development

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  • Hall, Bronwyn H.

Abstract

Evidence on the "funding gap" for R&D is surveyed. The focus is on financial market reasons for underinvestment in R&D that persist even in the absence of externality-induced underinvestment. The conclusions are that 1) small and new innovative firms experience high costs of capital that are only partly mitigated by the presence of venture capital; 2) evidence for high costs of R&D capital for large firms is mixed, although these firms do prefer internal funds for financing these investments; 3) there are limits to venture capital as a solution to the funding gap, especially in countries where public equity markets are not highly developed; and 4) further study of governmental seed capital and subsidy programs using quasi-experimental methods is warranted.

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Paper provided by Department of Economics, Institute for Business and Economic Research, UC Berkeley in its series Department of Economics, Working Paper Series with number qt34c1c643.

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Date of creation: 01 Jan 2002
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Handle: RePEc:cdl:econwp:qt34c1c643

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Keywords: financing constraints; R&D; venture capital; leverage; innovation;

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