The Effect of R&D Subsidies on Private R&D
University of Nottingham Research Paper No. 2005/38
31 Pages Posted: 6 Dec 2005
Date Written: December 2005
Abstract
This paper investigates the relationship between government support for R&D and R&D expenditure financed privately by firms using a comprehensive plant level data set for the manufacturing sector in the Republic of Ireland. Our empirical strategy combines a non-parametric matching procedure with a difference-in-differences estimator in order to deal with the potential selection problem inherent in the analysis. We find that for domestic plants small and medium sized grants serve to increase private R&D spending, particularly for the former where it can induce R&D spending even beyond the subsidy, while too large a grant may crowd out private financing of R&D. In contrast, evidence for foreign establishments suggests that grant provision causes neither additionality nor crowding out effects of private R&D financing, regardless of the size of the subsidy.
Keywords: research and development (R&D), subsidies, matching, difference-in-differences
JEL Classification: L2, H2, F2, O3
Suggested Citation: Suggested Citation
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