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Barriers to innovation and subsidy e¤ectiveness

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  • Xulia González
  • Jordi Jaumandreu
  • Consuelo Pazó

Abstract

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.

Suggested Citation

  • Xulia González & Jordi Jaumandreu & Consuelo Pazó, 2001. "Barriers to innovation and subsidy e¤ectiveness," Working Papers 0112, Universidade de Vigo, Departamento de Economía Aplicada.
  • Handle: RePEc:vig:wpaper:0112
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    References listed on IDEAS

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    1. David, Paul A. & Hall, Bronwyn H. & Toole, Andrew A., 2000. "Is public R&D a complement or substitute for private R&D? A review of the econometric evidence," Research Policy, Elsevier, vol. 29(4-5), pages 497-529, April.
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    3. Cohen, Wesley M. & Levin, Richard C., 1989. "Empirical studies of innovation and market structure," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 18, pages 1059-1107, Elsevier.
    4. 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.
    5. 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.
    6. 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.
    7. Xulia González & Jordi Jaumandreu, "undated". "Threshold effects in product R&D decisions: theoretical framework and empirical analysis," Studies on the Spanish Economy 78, FEDEA.
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    More about this item

    Keywords

    R&D; innovation; subsidies; thresholds; Tobit model;
    All these keywords.

    JEL classification:

    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models

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