R&D Investment Responses to R&D Subsidies: A Theoretical Analysis and a Microeconometric Study

Abstract

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

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

“…This is slightly higher than the fixed effects estimate in Klette and Møen (2012) using similar Norwegian data from the years 1982-1995. The point estimates we obtain are somewhat sensitive to specification choices, but there are very few estimates below one.…”

“…Formally, the average co-financing is 60-65 %. 7 As pointed out by Klette and Møen (2012) 6 There are altogether 142 programs in our dataset. 50 percent of the firms have received support from more than one program, and 8 percent have received support from more than four programs.…”

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

“…In Klette and Møen (1998), using the same data set as we do in this paper, we …nd that subsidized …rms perform poor in terms of productivity and growth. We speculate that this is caused by the government subsidizing some large …rms that were facing particularly severe problems when the IT industry was restructured towards the end of the 1980s.…”

China's R&D Subsidies - Allocation and Effectiveness

“…For Norwegian high-tech industries, Klette & Moen (2012) find both, weak evidence for lagged additionality as well as lagged neutral effects, depending on the econometric specification.…”