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Estimating the additionality of R&D subsidies using proposal evaluation data to control for firms' R&D intentions

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Empirical examination of whether R&D subsidies to private firms crowd out private investments has been hampered by problems related to selection. A particular worry is that research intentions and the quality of current research ideas may be correlated with the likelihood of applying for and receiving subsidies. Proposal evaluation data has been put forward as a potential remedy. Using such data from Norway, we do not find strong evidence suggesting that this type of selection creates a severe bias. Proposal evaluation grades strongly predict R&D investments and reduce selection bias in cross-sectional regressions, but there is limited variation in grades within firms over time. This suggests that unobserved project quality is largely absorbed by firm fixed effects. Our best estimate of the short-run additionality of R&D subsidies is 1.15, i.e., a one-unit increase in subsidy increases total R&D expenditure in the recipient firm by somewhat more than a unit. We demonstrate, however, that there is severe measurement error in the subsidy variable. Additionality is therefore likely to be underestimated, and we conclude that measurement errors may be a more important source of bias than selection when panel data are available.

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  • Morten S. Henningsen & Torbjørn Hægeland & Jarle Møen, 2012. "Estimating the additionality of R&D subsidies using proposal evaluation data to control for firms' R&D intentions," Discussion Papers 729, Statistics Norway, Research Department.
  • Handle: RePEc:ssb:dispap:729
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    Cited by:

    1. Bettina Becker, 2015. "Public R&D Policies And Private R&D Investment: A Survey Of The Empirical Evidence," Journal of Economic Surveys, Wiley Blackwell, vol. 29(5), pages 917-942, December.
    2. Esposti, Roberto & Materia, Valentina, 2015. "The determinants of the public R&D cofinancing rate An empirical assessment on agricultural research," 2015 Conference, August 9-14, 2015, Milan, Italy 211624, International Association of Agricultural Economists.
    3. Emmanuel Chavez, 2020. "The Effects of R&D Tax Credits and Subsidies onPrivate R&D in Mexico (Chapter 2)," Working Papers halshs-02652063, HAL.
    4. Morten Henningsen & Torbjørn Hægeland & Jarle Møen, 2015. "Estimating the additionality of R&D subsidies using proposal evaluation data to control for research intentions," The Journal of Technology Transfer, Springer, vol. 40(2), pages 227-251, April.
    5. Bettina Becker, 2013. "The Determinants of R&D Investment: A Survey of the Empirical Research," Discussion Paper Series 2013_09, Department of Economics, Loughborough University, revised Sep 2013.
    6. Materia, V.C. & Pascucci, S. & Kolympiris, C., 2015. "Understanding the selection processes of public research projects in agriculture: The role of scientific merit," Food Policy, Elsevier, vol. 56(C), pages 87-99.

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    More about this item

    Keywords

    Technology policy; R&D subsidies; input additionality; selection; proxy variables;
    All these keywords.

    JEL classification:

    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • L53 - Industrial Organization - - Regulation and Industrial Policy - - - Enterprise Policy
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

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