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R&D Subsidies, Innovation Location, and Productivity Growth

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  • Colin Davis
  • Ken‐ichi Hashimoto

Abstract

This paper studies how research subsidies affect productivity growth and welfare through adjustments in the geographic location of research and development (R&D). Our two‐country framework features a tension in the firm‐level innovation location decision between accessing technical knowledge and sourcing low‐cost, high‐skilled labor. We show that an R&D subsidy expands the implementing country's share of innovation and raises the rate of productivity growth. Although the non‐implementing country experiences a welfare improvement, the rising cost of the policy generates a concave relationship between the R&D subsidy and the welfare of the implementing country, yielding an optimal R&D subsidy rate.

Suggested Citation

  • Colin Davis & Ken‐ichi Hashimoto, 2025. "R&D Subsidies, Innovation Location, and Productivity Growth," Review of International Economics, Wiley Blackwell, vol. 33(4), pages 911-920, September.
    • Handle: RePEc:bla:reviec:v:33:y:2025:i:4:p:911-920
    DOI: 10.1111/roie.70000
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