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Barriers to Innovation and Subsidy Effectiveness

Author

Listed:
  • Xulia González

    (Universidade de Vigo)

  • Jordi Jaumandreu

    (Universidad Carlos III de Madrid)

  • Consuelo Pazo

    (Universidade de Vigo)

Abstract

We explore the effects of subsidies by means of a model of firmsï¿• decisions about performing R&D when some government support can be expected. We estimate it with data on about 2,000 performing and nonperforming Spanish manufacturing firms. We compute the subsidies required to induce R&D spending,we detect the firms that would cease to perform R&D without subsidies, and assess the change in the privately financed effort. Results suggest that subsidies stimulate R&D and some firms would stop performing in their absence,b ut most actual subsidies go to firms that would have performed R&D otherwise. We find no crowding out of private funds.

Suggested Citation

  • Xulia González & Jordi Jaumandreu & Consuelo Pazo, 2005. "Barriers to Innovation and Subsidy Effectiveness," RAND Journal of Economics, The RAND Corporation, vol. 36(4), pages 930-949, Winter.
  • Handle: RePEc:rje:randje:v:36:y:2005:4:p:930-949
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    References listed on IDEAS

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    1. Cohen, Wesley M. & Levin, Richard C., 1989. "Empirical studies of innovation and market structure," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 18, pages 1059-1107, Elsevier.
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    3. Klette, Tor Jakob & Moen, Jarle & Griliches, Zvi, 2000. "Do subsidies to commercial R&D reduce market failures? Microeconometric evaluation studies1," Research Policy, Elsevier, vol. 29(4-5), pages 471-495, April.
    4. Isabel Busom, 2000. "An Empirical Evaluation of The Effects of R&D Subsidies," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 9(2), pages 111-148.
    5. David, Paul A. & Hall, Bronwyn H. & Toole, Andrew A., 2000. "Is public R&D a complement or substitute for private R&D? A review of the econometric evidence," Research Policy, Elsevier, vol. 29(4-5), pages 497-529, April.
    6. Xulia González & Jordi Jaumandreu, "undated". "Threshold effects in product R&D decisions: theoretical framework and empirical analysis," Studies on the Spanish Economy 45, FEDEA.
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    More about this item

    JEL classification:

    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models

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