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The Impact of Public Funding on Private R&D investment: New Evidence from a Firm Level Innovation Study

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Author Info

  • Lööf, Hans

    ()
    (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)

  • Heshmati, Almas

    (heshmati@snu.ac.kr)

Abstract

This paper investigates the effectiveness of a public innovation policy aimed at stimulating private R&D investment. The research will examine whether public funding increases the total spending on research or merely displaces funding from private sources. The empirical analysis is based on the Community Innovation Survey data merged with register data. It is an evaluation of whether firms receiving public funds have on average a higher R&D intensity compared to those not receiving any such support. In order to account for possible selectivity bias, and to improve comparability of firms, two different versions of a semi-parametric matching approach are employed. The two matching estimators result in somewhat different results. The Nearest Neighbour estimator is preferred to the Kernel estimator. The results support the hypothesis suggesting that there are additive effects of public R&D financing on private research expenditures only for small firms

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Bibliographic Info

Paper provided by Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies in its series Working Paper Series in Economics and Institutions of Innovation with number 6.

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Length: 26 pages
Date of creation: 23 Nov 2004
Date of revision: 01 Mar 2005
Handle: RePEc:hhs:cesisp:0006

Note: The paper has been revised and the title has been changed
Contact details of provider:
Postal: CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology, SE-100 44 Stockholm, Sweden
Phone: +46 8 790 95 63
Web page: http://www.infra.kth.se/cesis/
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Keywords: R&D investment; crowding out; public funding; matching; subsidies;

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References

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  1. Hyytinen, Ari & Toivanen, Otto, 2003. "Do Financial Constraints Hold Back Innovation and Growth? Evidence on the Role of Public Policy," Discussion Papers 820, The Research Institute of the Finnish Economy.
  2. James Heckman & Hidehiko Ichimura & Jeffrey Smith & Petra Todd, 1998. "Characterizing Selection Bias Using Experimental Data," NBER Working Papers 6699, National Bureau of Economic Research, Inc.
  3. Almus, Matthias & Czarnitzki, Dirk, 2003. "The Effects of Public R&D Subsidies on Firms' Innovation Activities: The Case of Eastern Germany," Journal of Business & Economic Statistics, American Statistical Association, vol. 21(2), pages 226-36, April.
  4. Heckman, James J. & Lalonde, Robert J. & Smith, Jeffrey A., 1999. "The economics and econometrics of active labor market programs," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 31, pages 1865-2097 Elsevier.
  5. 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," Working Papers 99023, Stanford University, Department of Economics.
  6. Bronwyn H. Hall, 2003. "The Financing of Research and Development," Finance 0303003, EconWPA.
  7. Petr Hanel, 2003. "Impact Of Government Support Programs On Innovation By Canadian Manufacturing Firms," Cahiers de recherche 04-02, Departement d'Economique de la Faculte d'administration à l'Universite de Sherbrooke.
  8. Arthur M. Diamond, 1999. "Does Federal Funding "Crowd In" Private Funding Of Science?," Contemporary Economic Policy, Western Economic Association International, vol. 17(4), pages 423-431, October.
  9. Irwin, Douglas A. & Klenow, Peter J., 1996. "High-tech R&D subsidies Estimating the effects of Sematech," Journal of International Economics, Elsevier, vol. 40(3-4), pages 323-344, May.
  10. Tor Jakob Klette & Jarle Møen, 1999. "From Growth Theory to Technology Policy - Coordination Problems in Theory and Practice," Nordic Journal of Political Economy, Nordic Journal of Political Economy, vol. 25, pages 53-74.
  11. 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.
  12. Klette, T.J. & Moen, J. & Griliches, Z., 1999. "Do Subsidies to Commercial R&D Reduce Market Failures? Microeconometric Evaluation Studies," Papers 16/99, Norwegian School of Economics and Business Administration-.
  13. DUGUET Emmanuel, 2004. "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," Public Economics 0411007, EconWPA.
  14. Adam B. Jaffe, 2002. "Building Programme Evaluation into the Design of Public Research-Support Programmes," Oxford Review of Economic Policy, Oxford University Press, vol. 18(1), pages 22-34, Spring.
  15. Lerner, Josh, 1999. "The Government as Venture Capitalist: The Long-Run Impact of the SBIR Program," The Journal of Business, University of Chicago Press, vol. 72(3), pages 285-318, July.
  16. Lechner, Michael, 1999. "Earnings and Employment Effects of Continuous Off-the-Job Training in East Germany after Unification," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(1), pages 74-90, January.
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Citations

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Cited by:
  1. Castillo, Leopoldo Laborda & Guasch, Jose Luis, 2012. "Overdraft facility policy and firm performance : an empirical analysis in eastern European Union industrial firms," Policy Research Working Paper Series 6101, The World Bank.
  2. Wojciech Grabowski & Krzysztof Szczygielski & M. Teoman Pamukçu & Sinan Tandogan, 2013. "Does Government Support for Private Innovation Matter? Firm Level Evidence from Turkey and Poland," CASE Network E-briefs 3, CASE-Center for Social and Economic Research.
  3. Aerts, Kris & Schmidt, Tobias, 2006. "Two for the price of one? On additionality effects of R&D subsidies: A comparison between Flanders and Germany," ZEW Discussion Papers 06-63, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  4. Sonja Radas & Ivan-Damir Anic, 2013. "Evaluating Additionality of an Innovation Subsidy Program Targeted at SMEs: An Exploratory Study," Croatian Economic Survey, The Institute of Economics, Zagreb, vol. 15(1), pages 61-88, April.
  5. Tommy Clausen, 2008. "Do subsidies have positive impacts on R&D and innovation activities at the firm level?," Working Papers on Innovation Studies 20070615, Centre for Technology, Innovation and Culture, University of Oslo.

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