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Barriers to innovation and subsidy e¤ectiveness

  • Xulia González
  • Jordi Jaumandreu
  • Consuelo Pazó

This paper explores the effects of R&D commercial subsidies by means of a model of firms’ decisions about performing R&D when some government support can be expected. To estimate the parameters of interest we use an unbalanced panel sample of 1,800 performing and non-performing Spanish manufacturing firms. For the non-performing firms, we compute the trigger subsidies required to induce R&D spending (a measure of market failure). Among the performing …rms, we can detect the ones that would cease to perform R&D if subsidies were eliminated. We also explore the change in the privately financed R&D effort of the performing firms. Results support the claim that market failures are real and subsidies stimulate R&D activities, but also show that actual subsidies go to firms that would have performed R&D otherwise.

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Paper provided by Universidade de Vigo, Departamento de Economía Aplicada in its series Working Papers with number 0112.

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Length: 39 pages
Date of creation: Jun 2001
Date of revision:
Handle: RePEc:vig:wpaper:0112
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  1. Xulia González & Jordi Jaumandreu, . "Threshold effects in product R&D decisions: theoretical framework and empirical analysis," Studies on the Spanish Economy 78, FEDEA.
  2. 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.
  3. Leung, Siu Fai & Yu, Shihti, 1996. "On the choice between sample selection and two-part models," Journal of Econometrics, Elsevier, vol. 72(1-2), pages 197-229.
  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. Nelson, Forrest D., 1977. "Censored regression models with unobserved, stochastic censoring thresholds," Journal of Econometrics, Elsevier, vol. 6(3), pages 309-327, November.
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