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Estimating the Local Average Treatment Effect of R&D Subsidies in a Virtual Common Pot

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  • Hünermund, Paul
  • Czarnitzki, Dirk

Abstract

We investigate the additionality effects of Eurostars, Europe's largest multilateral subsidy program for R&D-performing small and medium sized enterprises. A specific budget allocation rule serves as an instrument and allows us to identify the local average treatment effect of public R&D grants. This rule, referred to as Virtual Common Pot (VCP), is designed to avoid cross-subsidization between participating countries. We compare the program's effect under a VCP with the counterfactual situation under a Real Common Pot (RCP), where project authorities allocate a single budget according to uniform project evaluation criteria. Our estimates suggest a large positive impact on job creation whereas there is no treatment effect on patenting. In addition, we find a relative inefficiency of 19.4% more jobs which could be created by the program under a RCP.

Suggested Citation

  • Hünermund, Paul & Czarnitzki, Dirk, 2015. "Estimating the Local Average Treatment Effect of R&D Subsidies in a Virtual Common Pot," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 112869, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc15:112869
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    References listed on IDEAS

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    1. Richard K. Crump & V. Joseph Hotz & Guido W. Imbens & Oscar A. Mitnik, 2009. "Dealing with limited overlap in estimation of average treatment effects," Biometrika, Biometrika Trust, vol. 96(1), pages 187-199.
    2. Nicholas Bloom & Mark Schankerman & John Van Reenen, 2013. "Identifying Technology Spillovers and Product Market Rivalry," Econometrica, Econometric Society, vol. 81(4), pages 1347-1393, July.
    3. Takalo, Tuomas & Tanayama, Tanja & Toivanen, Otto, 2013. "Market failures and the additionality effects of public support to private R&D: Theory and empirical implications," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 634-642.
    4. Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626, National Bureau of Economic Research, Inc.
    5. Imbens, Guido W & Angrist, Joshua D, 1994. "Identification and Estimation of Local Average Treatment Effects," Econometrica, Econometric Society, vol. 62(2), pages 467-475, March.
    6. Guido W. Imbens, 2010. "Better LATE Than Nothing: Some Comments on Deaton (2009) and Heckman and Urzua (2009)," Journal of Economic Literature, American Economic Association, vol. 48(2), pages 399-423, June.
    7. Blind, Knut & Edler, Jakob & Frietsch, Rainer & Schmoch, Ulrich, 2006. "Motives to patent: Empirical evidence from Germany," Research Policy, Elsevier, vol. 35(5), pages 655-672, June.
    8. James J. Heckman & Hidehiko Ichimura & Petra Todd, 1998. "Matching As An Econometric Evaluation Estimator," Review of Economic Studies, Oxford University Press, vol. 65(2), pages 261-294.
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    More about this item

    JEL classification:

    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models

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