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The impact of public R&D expenditure on business R&D

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  • Bruno Van Pottelsberghe
  • Dominique Guellec

Abstract

This paper attempts to quantify the aggregate net effect of government funding on business R&D in 17 OECD Member countries over the past two decades. Grants, procurement, tax incentives and direct performance of research (in public laboratories or universities) are the major policy tools in the field. The major results of the study are the following: Direct government funding of R&D performed by firms has a positive effect on business financed R&D (except if the funding is targeted towards defence activities). Tax incentives have an immediate and positive effect on business-financed R&D; Direct funding as well as tax incentives are more effective when they are stable over time: firms do not invest in additional R&D if they are uncertain of the durability of the government support; Direct government funding and R&D tax incentives are substitutes: increased intensity of one reduces the effect of the other on business R&D; The stimulating effect of government funding varies with respect to its generosity: it increases up to a certain threshold (about 10% of business R&D) and then decreases beyond; Defence research performed in public laboratories and universities crowds out private R&D; Civilian public research is neutral for business R&D. * We thank the participants to various seminars, including the OECD Committee for Scientific and Technology Policy and the NBER 2000 Summer Institute on Productivity for helpful comments and suggestions. All opinions expressed in this article are those of the authors and do not reflect necessarily the views of the OECD or Universite Libre de Bruxelles.

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Paper provided by ULB -- Universite Libre de Bruxelles in its series ULB Institutional Repository with number 2013/6213.

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Date of creation: 2003
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Publication status: Published in: Economics of Innovation and New Technology (2003)
Handle: RePEc:ulb:ulbeco:2013/6213

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  1. Switzer, Lorne, 1984. "The Determinants of Industrial R&D: A Funds Flow Simultaneous Equation Approach," The Review of Economics and Statistics, MIT Press, vol. 66(1), pages 163-68, February.
  2. Holemans, Benni & Sleuwaegen, Leo, 1988. "Innovation expenditures and the role of government in Belgium," Research Policy, Elsevier, Elsevier, vol. 17(6), pages 375-379, December.
  3. David, P.A. & Hall, B.H., 1999. "Heart of Darkness: Public-Private Interaction Inside the R&D Black Box," Economics Papers 1999-w16, Economics Group, Nuffield College, University of Oxford.
  4. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, Econometric Society, vol. 49(6), pages 1417-26, November.
  5. Levy, David M., 1990. "Estimating the impact of government R&D," Economics Letters, Elsevier, Elsevier, vol. 32(2), pages 169-173, February.
  6. Czarnitzki, Dirk & Fier, Andreas, 2001. "Do R&D subsidies matter? Evidence for the German service sector," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 01-19, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  7. David, Paul A. & Hall, Bronwyn H. & Toole, Andrew A., 1999. "Is Public R&D a Complement or Substitute for Private R&D? A Review of the Econometric Evidence," Department of Economics, Working Paper Series, Department of Economics, Institute for Business and Economic Research, UC Berkeley qt1sz6g8bv, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  8. Lichtenberg, Frank R, 1984. "The Relationship between Federal Contract R&D and Company R&D," American Economic Review, American Economic Association, American Economic Association, vol. 74(2), pages 73-78, May.
  9. Lichtenberg, Frank R, 1987. "The Effect of Government Funding on Private Industrial Research and Development: A Re-assessment," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 36(1), pages 97-104, September.
  10. Keane, Michael P & Runkle, David E, 1992. "On the Estimation of Panel-Data Models with Serial Correlation When Instruments Are Not Strictly Exogenous," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 10(1), pages 1-9, January.
  11. Goolsbee, Austan, 1998. "Does Government R&D Policy Mainly Benefit Scientists and Engineers?," American Economic Review, American Economic Association, American Economic Association, vol. 88(2), pages 298-302, May.
  12. Adams, James D, 1990. "Fundamental Stocks of Knowledge and Productivity Growth," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 98(4), pages 673-702, August.
  13. John Scott, 1984. "Firm versus Industry Variability in R&D Intensity," NBER Chapters, in: R & D, Patents, and Productivity, pages 233-248 National Bureau of Economic Research, Inc.
  14. Bruno Van Pottelsberghe & Henri Capron, 1997. "Public support to business R&D: a survey and some new quantitative evidence," ULB Institutional Repository 2013/6283, ULB -- Universite Libre de Bruxelles.
  15. Pierre Mohnen, 1999. "Tax Incentives: Issue and Evidence," CIRANO Working Papers, CIRANO 99s-32, CIRANO.
  16. Bronwyn Hall, 1992. "R&D Tax Policy During the Eighties: Success or Failure?," NBER Working Papers 4240, National Bureau of Economic Research, Inc.
  17. Cohen, Wesley M & Levinthal, Daniel A, 1989. "Innovation and Learning: The Two Faces of R&D," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 99(397), pages 569-96, September.
  18. Carmichael, Jeffrey, 1981. "The Effects of Mission-Oriented Public R&D Spending on Private Industry," Journal of Finance, American Finance Association, American Finance Association, vol. 36(3), pages 617-27, June.
  19. Klette, T.J. & Moen, J. & Griliches, Z., 1999. "Do Subsidies to Commercial R&D Reduce Market Failures? Microeconometric Evaluation Studies," Papers, Norwegian School of Economics and Business Administration- 16/99, Norwegian School of Economics and Business Administration-.
  20. Hall, Bronwyn & Van Reenen, John, 2000. "How effective are fiscal incentives for R&D? A review of the evidence," Research Policy, Elsevier, Elsevier, vol. 29(4-5), pages 449-469, April.
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