Returns to public R&D grants and subsidies
AbstractWe address the question of whether the returns to R&D differ between R&D projects funded by public grants and R&D in general. To answer this question, we use a flexible production function that distinguishes between different types of R&D by source of finance. Our approach requires no adjustment of the sample or data in order to include firms that never invest in R&D, in contrast to the standard Cobb-Douglas production specification. We investigate the productivity and profitability effects of R&D using a comprehensive panel of Norwegian firms over the period 2001-2009. The results suggest that the returns to R&D projects subsidized by the Research Council of Norway do not differ significantly from R&D spending in general. Our estimate of the average rate of return to R&D is about 10 percent. This estimate is robust with respect to whether firms with zero R&D are included in the estimation sample or not. In contrast, using a standard Cobb-Douglas specification and restricting the sample of firms to those with positive R&D, leads to implausibly high estimates of the rate of returns.
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Bibliographic InfoPaper provided by Research Department of Statistics Norway in its series Discussion Papers with number 740.
Date of creation: May 2013
Date of revision:
Returns to R&D; Public grants; Public subsidies; Productivity;
Find related papers by JEL classification:
- C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
- D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
- O38 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Government Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-10-25 (All new papers)
- NEP-CSE-2013-10-25 (Economics of Strategic Management)
- NEP-EFF-2013-10-25 (Efficiency & Productivity)
- NEP-INO-2013-10-25 (Innovation)
- NEP-PBE-2013-10-25 (Public Economics)
- NEP-PPM-2013-10-25 (Project, Program & Portfolio Management)
- NEP-TID-2013-10-25 (Technology & Industrial Dynamics)
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