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High Tech R&D Subsidies: Estimating the Effects of Sematech

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  • Douglas A. Irwin
  • Peter J. Klenow

Abstract

Sparked by concerns about their shrinking market share, 14 leading U.S. semiconductor producers, with the financial assistance of the U.S. government in the form of $100 million in annual subsidies, formed a joint R&D consortium -- Sematech -- in 1987. Using Compustat data on all U.S. semiconductor firms, we estimate the effects of Sematech on members' R&D spending, profitability, investment, and productivity. In so doing we test two hypotheses: the `commitment' hypothesis that Sematech obligates member firms to spend more on high- spillover R&D, and the `sharing' hypothesis that Sematech reduces duplication of member R&D spending. Whereas the commitment hypothesis provides a rationale for the government subsidies, the sharing hypothesis does not. We find that Sematech induced members to cut their overall R&D spending on the order of $300 million per year, providing support for the sharing hypothesis.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4974.

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Date of creation: Dec 1994
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Publication status: published as Journal of International Economics, vol. 40, no. 3/4, May 1996, pp. 323-344
Handle: RePEc:nbr:nberwo:4974

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  1. Kamien, Morton I & Muller, Eitan & Zang, Israel, 1992. "Research Joint Ventures and R&D Cartels," American Economic Review, American Economic Association, American Economic Association, vol. 82(5), pages 1293-306, December.
  2. Spencer, Barbara J & Brander, James A, 1983. "International R & D Rivalry and Industrial Strategy," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 50(4), pages 707-22, October.
  3. Jovanovic, B., 1993. "The Diversification of Production," Working Papers, C.V. Starr Center for Applied Economics, New York University 93-11, C.V. Starr Center for Applied Economics, New York University.
  4. Irwin, Douglas A & Klenow, Peter J, 1994. "Learning-by-Doing Spillovers in the Semiconductor Industry," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 102(6), pages 1200-1227, December.
  5. Cohen, Linda, 1994. "When Can Government Subsidize Research Joint Ventures? Politics, Economics, and Limits to Technology Policy," American Economic Review, American Economic Association, American Economic Association, vol. 84(2), pages 159-63, May.
  6. Reinganum, Jennifer F., 1989. "The timing of innovation: Research, development, and diffusion," Handbook of Industrial Organization, Elsevier, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 14, pages 849-908 Elsevier.
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