IDEAS home Printed from https://ideas.repec.org/p/bcb/wpaper/631.html
   My bibliography  Save this paper

R&D Subsidy and Import Substitution: growing in the shadow of protection

Author

Listed:
  • Gustavo de Souza
  • Gabriel Garber

Abstract

We study the effect of an innovation subsidy on the long-run growth of firms in a developing country. Using administrative microdata from Brazil and a quasi-experimental design that compares near-winners to near-losers of R&D subsidy applications, we find that the program had a persistent effect on firm size: fourteen years after receiving the subsidy, subsidized firms were 59% larger. The effect is strongest among small and young firms facing high borrowing costs, which is consistent with the subsidy alleviating financial constraints. This growth, however, did not come from firms developing frontier innovations. Instead, firms used the subsidy to expand their product lines into high-tariff markets, producing local versions of foreign goods.

Suggested Citation

  • Gustavo de Souza & Gabriel Garber, 2025. "R&D Subsidy and Import Substitution: growing in the shadow of protection," Working Papers Series 631, Central Bank of Brazil, Research Department.
    • Handle: RePEc:bcb:wpaper:631
    as

    Download full text from publisher

    File URL: https://www.bcb.gov.br/content/publicacoes/WorkingPaperSeries/WP631v2.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Raffaello Bronzini & Eleonora Iachini, 2014. "Are Incentives for R&D Effective? Evidence from a Regression Discontinuity Approach," American Economic Journal: Economic Policy, American Economic Association, vol. 6(4), pages 100-134, November.
    2. Diogo G. C. Britto & Paolo Pinotti & Breno Sampaio, 2022. "The Effect of Job Loss and Unemployment Insurance on Crime in Brazil," Econometrica, Econometric Society, vol. 90(4), pages 1393-1423, July.
    3. Stefan Wager & Susan Athey, 2018. "Estimation and Inference of Heterogeneous Treatment Effects using Random Forests," Journal of the American Statistical Association, Taylor & Francis Journals, vol. 113(523), pages 1228-1242, July.
    4. Manelici, Isabela & Pantea, Smaranda, 2021. "Industrial policy at work: Evidence from Romania’s income tax break for workers in IT," European Economic Review, Elsevier, vol. 133(C).
    5. Jeffrey L. Furman & Markus Nagler & Martin Watzinger, 2021. "Disclosure and Subsequent Innovation: Evidence from the Patent Depository Library Program," American Economic Journal: Economic Policy, American Economic Association, vol. 13(4), pages 239-270, November.
    6. Nicholas Bloom & Mirko Draca & John Van Reenen, 2016. "Trade Induced Technical Change? The Impact of Chinese Imports on Innovation, IT and Productivity," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 83(1), pages 87-117.
    7. Eric Avis & Claudio Ferraz & Frederico Finan, 2018. "Do Government Audits Reduce Corruption? Estimating the Impacts of Exposing Corrupt Politicians," Journal of Political Economy, University of Chicago Press, vol. 126(5), pages 1912-1964.
    8. Joseph P. Kaboski & Robert M. Townsend, 2011. "A Structural Evaluation of a Large‐Scale Quasi‐Experimental Microfinance Initiative," Econometrica, Econometric Society, vol. 79(5), pages 1357-1406, September.
    9. Daniel Carvalho, 2014. "The Real Effects of Government-Owned Banks: Evidence from an Emerging Market," Journal of Finance, American Finance Association, vol. 69(2), pages 577-609, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Julia Fonseca & Adrien Matray, 2022. "Financial Inclusion, Economic Development, and Inequality: Evidence from Brazil," Working Papers 308, Princeton University, Department of Economics, Center for Economic Policy Studies..
    2. Diogo G. C. Britto & Gianmarco Daniele & Marco Le Moglie & Paolo Pinotti & Breno Sampaio, 2024. "A Few Bad Apples? Criminal Charges, Political Careers, and Policy Outcomes," CESifo Working Paper Series 11382, CESifo.
    3. Antonin Bergeaud & Julia Schmidt & Riccardo Zago, 2022. "Patents that match your standards: firm-level evidence on competition and innovation," CEP Discussion Papers dp1881, Centre for Economic Performance, LSE.
    4. Lunyu Xie & Tianhua Zou & Joshua Linn & Haosheng Yan, 2024. "Can Building Subway Systems Improve Air Quality? New Evidence from Multiple Cities and Machine Learning," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 87(4), pages 1009-1044, April.
    5. Kevin A. Bryan & Heidi L. Williams, 2021. "Innovation: Market Failures and Public Policies," NBER Working Papers 29173, National Bureau of Economic Research, Inc.
    6. Lucas Figal Garone & Paula A. López Villalba & Alessandro Maffioli & Christian A. Ruzzier, 2020. "Productivity differences among firms in Latin American and the Caribbean," Working Papers 136, Universidad de San Andres, Departamento de Economia, revised Jan 2020.
    7. Newham, Melissa & Valente, Marica, 2024. "The cost of influence: How gifts to physicians shape prescriptions and drug costs," Journal of Health Economics, Elsevier, vol. 95(C).
    8. Masahito AMBASHI & Naoyuki HARAOKA & Fukunari KIMURA & Yasuyuki SAWADA & Masakazu TOYODA & Shujiro URATA, 2025. "New Industrial Policies to Achieve Sustainable Asia-Wide Economic Development," Working Papers DP-2024-34, Economic Research Institute for ASEAN and East Asia (ERIA).
    9. Marco Letta & Pierluigi Montalbano & Adriana Paolantonio, 2024. "Climate Immobility Traps: A Household-Level Test," Papers 2403.09470, arXiv.org.
    10. Gustavo de Souza, 2023. "R&D Subsidy and Import Substitution: Growing in the Shadow of Protection," Working Paper Series WP 2023-37, Federal Reserve Bank of Chicago.
    11. Gustavo de Souza & Jacob S. Herbstman & Jack Mannion, 2024. "How Demand for New Skills Affects Wage Inequality: The Case of Software Programmers," Working Paper Series WP 2024-19, Federal Reserve Bank of Chicago.
    12. Liu, Tingwen & Liu, Jie & Cheng, Tzu-Chang Forrest, 2025. "Heterogeneity in the effect of green financing constraints on labor investment efficiency: A causal forest approach," Economic Modelling, Elsevier, vol. 143(C).
    13. Muffert, Johanna & Winkler, Erwin, 2025. "Using Machine Learning to Understand the Heterogeneous Earnings Effects of Exports," IZA Discussion Papers 17667, Institute of Labor Economics (IZA).
    14. Fonseca, Julia & Matray, Adrien, 2024. "Financial inclusion, economic development, and inequality: Evidence from Brazil," Journal of Financial Economics, Elsevier, vol. 156(C).
    15. Lechner, Michael, 2018. "Modified Causal Forests for Estimating Heterogeneous Causal Effects," IZA Discussion Papers 12040, Institute of Labor Economics (IZA).
    16. William Arbour, 2021. "Can Recidivism be Prevented from Behind Bars? Evidence from a Behavioral Program," Working Papers tecipa-683, University of Toronto, Department of Economics.
    17. Dimitris Bertsimas & Agni Orfanoudaki & Rory B. Weiner, 2020. "Personalized treatment for coronary artery disease patients: a machine learning approach," Health Care Management Science, Springer, vol. 23(4), pages 482-506, December.
    18. Liliana Meza-González & Jaime Marie Sepulveda, 2019. "The impact of competition with China in the US market on innovation in Mexican manufacturing firms," Latin American Economic Review, Springer;Centro de Investigaciòn y Docencia Económica (CIDE), vol. 28(1), pages 1-21, December.
    19. Justin Whitehouse & Morgane Austern & Vasilis Syrgkanis, 2025. "Inference on Optimal Policy Values and Other Irregular Functionals via Smoothing," Papers 2507.11780, arXiv.org.
    20. repec:osf:socarx:qzmf8_v1 is not listed on IDEAS
    21. Emily Breza & Cynthia Kinnan, 2021. "Measuring the Equilibrium Impacts of Credit: Evidence from the Indian Microfinance Crisis," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 136(3), pages 1447-1497.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bcb:wpaper:631. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Rodrigo Barbone Gonzalez (email available below). General contact details of provider: https://www.bcb.gov.br/en .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.