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Subsidising innovation over the business cycle

Author

Listed:
  • Isabel Busom
  • Jorge-Andrés Vélez-Ospina

Abstract

We investigate whether the impact of direct support for business investment in R&D and innovation varies over the business cycle. We study whether firms that obtain public support in a recession differ from firms that obtain it during expansions; whether the impact of support is smaller in recessions than in expansions, and whether effects vary with the treatment pattern. Using firm-level data from Spain during the period 2005 to 2014, we combine propensity score matching and difference-in-differences methods to estimate firms’ response. We find that (i) while the impact of support on monetary investment in innovation is pro-cyclical, it is counter-cyclical in terms of the employee-time allocation to innovation activities; (ii) the additionality of a one-year treatment is smaller than that of a longer treatment. Direct public support may have thus prevented a decline of the firms’ knowledge capital during the recession.

Suggested Citation

  • Isabel Busom & Jorge-Andrés Vélez-Ospina, 2021. "Subsidising innovation over the business cycle," Industry and Innovation, Taylor & Francis Journals, vol. 28(6), pages 773-803, July.
    • Handle: RePEc:taf:indinn:v:28:y:2021:i:6:p:773-803
    DOI: 10.1080/13662716.2020.1801388
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    Cited by:

    1. Maria Savona, 2020. "The Saga of the Covid-19 Contact Tracing Apps: Lessons for Data Governance," SPRU Working Paper Series 2020-10, SPRU - Science Policy Research Unit, University of Sussex Business School.
    2. Napolitano, Lorenzo & Sbardella, Angelica & Consoli, Davide & Barbieri, Nicolò & Perruchas, François, 2022. "Green innovation and income inequality: A complex system analysis," Structural Change and Economic Dynamics, Elsevier, vol. 63(C), pages 224-240.
    3. Antonio García-Sánchez & Ruth Rama, 2024. "New challenges in European innovation partnerships: SOEs, POEs and foreign MNEs during crises," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 14(4), pages 1053-1092, December.
    4. Michael Asiedu & Nana Adwoa Anokye Effah & Benedict Arthur, 2024. "Innovation and Firm Productivity in Central America," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(1), pages 4639-4672, March.
    5. Ascensión Barajas & Elena Huergo & Lourdes Moreno, 2021. "The role of public loans in financing business R&D through the economic cycle," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 38(2), pages 505-538, July.

    More about this item

    JEL classification:

    • O25 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Industrial Policy
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • L29 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Other
    • L53 - Industrial Organization - - Regulation and Industrial Policy - - - Enterprise Policy
    • H - Public Economics

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