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R&D Heterogeneity and the Impact of R&D Subsidies
[‘Innovation, reallocation and growth’]

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  • Sigurd Mølster Galaasen
  • Alfonso Irarrazaba

Abstract

In this paper we study the determinants of R&D heterogeneity and the economic impact of R&D subsidies. We estimate a Schumpeterian growth model featuring firms with heterogeneous innovation efficiencies. The model fits well the R&D investment distribution, and the frequency and relative size of R&D performers. Using the model, we study the impact of a Norwegian R&D reform targeting firms with R&D spending below a certain threshold. The size-dependent subsidy increases aggregate R&D investment by 11.7%, but reduces growth and welfare. In contrast, a uniform subsidy stimulates investment, growth and welfare.

Suggested Citation

  • Sigurd Mølster Galaasen & Alfonso Irarrazaba, 2021. "R&D Heterogeneity and the Impact of R&D Subsidies [‘Innovation, reallocation and growth’]," The Economic Journal, Royal Economic Society, vol. 131(640), pages 3338-3364.
    • Handle: RePEc:oup:econjl:v:131:y:2021:i:640:p:3338-3364.
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    File URL: http://hdl.handle.net/10.1093/ej/ueab021
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    Cited by:

    1. Bearzotti, Enia & Polanec, Sašo & Bartolj, Tjaša, 2023. "The Effects of Subsidies on Firm Size and Productivity," MPRA Paper 118490, University Library of Munich, Germany.
    2. Claudia Pigini & Alessandro Sterlacchini & Francesco Valentini, 2023. "Persistence Of R&D Intensities In The World'S Top Investors In R&D," Working Papers 480, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
    3. Zhenjun Yan & Xinyan Wu & Jing Li & Bingqing Liang, 2022. "Competition and Heterogeneous Innovation Qualities: Evidence from a Natural Experiment," Sustainability, MDPI, vol. 14(13), pages 1-21, June.

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