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R&D investment responses to R&D subsidies: A theoretical analysis and a microeconometric study

  • Klette, Tor Jakob

    (Department of Economics, University of Oslo)

  • Møen, Jarle

    ()

    (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)

Subsidies to the Norwegian high-tech industries have traditionally been given as "matching grants", i.e. the subsidies are targeted, and the firms have to contribute a 50 % own risk capital to the subsidized projects. Our results suggest that grants do not crowd out privately financed R&D, but that subsidized firms do not increase their privately financed R&D either. Hence, the own risk capital seems to be taken from ordinary R&D budgets. We also investigate possible long-run effects of R&D subsidies, and show that conventional R&D investment models predict negative dynamic effects of subsidies. Our data, however, do not support this claim. On the contrary, there are indications of a positive dynamic effects, i.e. temporary R&D subsidies seem to stimulate firms to increase their R&D investments even after the grants have expired. We propose learning-by-doing in R&D activities as a possible explanation for this, and present a theoretical analysis showing that such effects may alter the predictions of the conventional models. A structural, econometric model of R&D investments incorporating such learning effects is estimated with reasonable results.

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Paper provided by Department of Business and Management Science, Norwegian School of Economics in its series Discussion Papers with number 2011/15.

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Length: 41 pages
Date of creation: 06 Sep 2011
Date of revision:
Handle: RePEc:hhs:nhhfms:2011_015
Contact details of provider: Postal: NHH, Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway
Phone: +47 55 95 92 93
Fax: +47 55 95 96 50
Web page: http://www.nhh.no/en/research-faculty/department-of-business-and-management-science.aspx
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