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Estimating the causal effect of R&D subsidies in a pan-European program

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  • Hünermund, Paul
  • Czarnitzki, Dirk

Abstract

We investigate the effect of Europe's largest multilateral subsidy program for R&D-performing small and medium-sized enterprises. The program applied a specific budget allocation rule, referred to as Virtual Common Pot (VCP), which is designed to avoid cross-subsidization between participating countries. This rule creates exogenous variation in funding status and allows us to identify the causal effect of public R&D grants on firm growth. In addition, we compare the program's effect under the VCP rule with the standard situation of a Real Common Pot (RCP), in which program authorities allocate a single budget according to uniform project evaluation criteria. Our estimates suggest that R&D grants had no average effect on job creation and sales growth, but treatment effects were heterogeneous and positive for high-quality projects. Under an RCP the program would have created 53% more jobs and 48% higher sales.

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  • Hünermund, Paul & Czarnitzki, Dirk, 2019. "Estimating the causal effect of R&D subsidies in a pan-European program," Research Policy, Elsevier, vol. 48(1), pages 115-124.
    • Handle: RePEc:eee:respol:v:48:y:2019:i:1:p:115-124
    DOI: 10.1016/j.respol.2018.08.001
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    3. Rainer Widmann, 2023. "The Behavioral Additionality of Government Research Grants," Rationality and Competition Discussion Paper Series 417, CRC TRR 190 Rationality and Competition.
    4. Giebel, Marek & Kraft, Kornelius, 2021. "Subsidies and innovation in the recent financial crisis," ZEW Discussion Papers 21-097, ZEW - Leibniz Centre for European Economic Research.
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    6. Kwangsoo Shin & Minkyung Choy & Chul Lee & Gunno Park, 2019. "Government R&D Subsidy and Additionality of Biotechnology Firms: The Case of the South Korean Biotechnology Industry," Sustainability, MDPI, vol. 11(6), pages 1-22, March.
    7. Jan Schnellenbach & Christian Schubert, 2019. "A note on the behavioral political economy of innovation policy," Journal of Evolutionary Economics, Springer, vol. 29(5), pages 1399-1414, November.
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    9. Arash Ketabforoush Badri & Parsa Ketabforoush Badri & Mostafa Cham, 2019. "R&D Spending and Economic Growth in Selected OECD Countries," International Journal of Applied Economics, Finance and Accounting, Online Academic Press, vol. 5(2), pages 48-54.
    10. Aurélien Quignon & Nadine Levratto, 2021. "Innovation Performance and the Signal Effect: Evidence from a European Program," EconomiX Working Papers 2021-34, University of Paris Nanterre, EconomiX.
    11. Kyoungmi Lee & Sunglok Choi & Jae-Suk Yang, 2021. "Can expensive research equipment boost research and development performances?," Scientometrics, Springer;Akadémiai Kiadó, vol. 126(9), pages 7715-7742, September.
    12. Hyytinen, Ari, 2021. "Shared problem solving and design thinking in entrepreneurship research," Journal of Business Venturing Insights, Elsevier, vol. 16(C).
    13. Zhao, Bo & Ziedonis, Rosemarie, 2020. "State governments as financiers of technology startups: Evidence from Michigan's R&D loan program," Research Policy, Elsevier, vol. 49(4).
    14. Yu, Feifei & Wang, Liting & Li, Xiaotong, 2020. "The effects of government subsidies on new energy vehicle enterprises: The moderating role of intelligent transformation," Energy Policy, Elsevier, vol. 141(C).
    15. Evangelos Makryvelios & George Mavrotas, 2021. "Analysis of the Research & Development Funding in Greece under EU Programmes," Journal of Public Administration and Governance, Macrothink Institute, vol. 11(1), pages 223250-2232, December.
    16. Czarnitzki, Dirk & Hünermund, Paul & Moshgbar, Nima, 2020. "Public Procurement of Innovation: Evidence from a German Legislative Reform," International Journal of Industrial Organization, Elsevier, vol. 71(C).
    17. Bettina Becker, 2020. "The Impact of Innovation Policy on Firm Innovation and Performance: A Review of Recent Research Developments," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 17(04), pages 10-15, January.
    18. Chandranath Amarasekara & Bernard Njindan Iyke & Paresh Kumar Narayan, 2022. "The role of R&D and economic policy uncertainty in Sri Lanka’s economic growth," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 8(1), pages 1-19, December.
    19. Lenihahn, Helena & Mulligan, Kevin & Perez-Alaniz, Mauricio & Rammer, Christian, 2023. "Serving the right menu of R&D policy instruments to firms: An analysis of policy mix sequencing," ZEW Discussion Papers 23-009, ZEW - Leibniz Centre for European Economic Research.
    20. Antonio Ughi & Andrea Mina, 2023. "Digital Advantage: Evidence from a Policy Evaluation of Adoption Subsidies," LEM Papers Series 2023/41, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    21. Maoyan She & Die Hu & Yuandi Wang & Li Li, 2023. "How do top management team characteristics affect government R&D subsidy grants? Evidence from an information economics perspective," Asian Business & Management, Palgrave Macmillan, vol. 22(1), pages 330-353, February.
    22. Aalto, Eero & Gustafsson, Robin, 2020. "Innovation Promotion Rationales and Impacts – A Review," ETLA Reports 99, The Research Institute of the Finnish Economy.
    23. Paul Hünermund & Dirk Czarnitzki, 2020. "Innovation Policy and Causality," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 17(04), pages 03-06, January.
    24. Pietro Santoleri & Andrea Mina & Alberto Di Minin & Irene Martelli, 2020. "The causal effects of R&D grants: evidence from a regression discontinuity," LEM Papers Series 2020/18, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.

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    More about this item

    Keywords

    R&D policy; Causal inference; Virtual Common Pot; Joint Programming Initiative; European Research Area;
    All these keywords.

    JEL classification:

    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models

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