Article

The impact of public R&D expenditure on business R&D*

Economics of Innovation and New Technology 02/2003; 12(3):225-243. DOI: 10.1080/10438590290004555
Source: RePEc

ABSTRACT This paper attempts to quantify the aggregate net effect of government funding on business R&D in 17 OECD Member countries over the past two decades. Grants, procurement, tax incentives and direct performance of research (in public laboratories or universities) are the major policy tools in the field. The major results of the study are the following: Direct government funding of R&D performed by firms has a positive effect on business financed R&D (except if the funding is targeted towards defence activities). Tax incentives have an immediate and positive effect on business-financed R&D; Direct funding as well as tax incentives are more effective when they are stable over time: firms do not invest in additional R&D if they are uncertain of the durability of the government support; Direct government funding and R&D tax incentives are substitutes: increased intensity of one reduces the effect of the other on business R&D; The stimulating effect of government funding varies with respect to its generosity: it increases up to a certain threshold (about 10% of business R&D) and then decreases beyond; Defence research performed in public laboratories and universities crowds out private R&D; Civilian public research is neutral for business R&D. * We thank the participants to various seminars, including the OECD Committee for Scientific and Technology Policy and the NBER 2000 Summer Institute on Productivity for helpful comments and suggestions. All opinions expressed in this article are those of the authors and do not reflect necessarily the views of the OECD or Universite Libre de Bruxelles.

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Available from: Bruno van Pottelsberghe, Aug 30, 2015
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    • "Hamberg [9] thought that subsidies from the United States’ Department of Defense would increase R&D investment of enterprises. At the macro level, Guellec and Van Pottlesberghe [10] have systematically studied the effect of public investment on R&D action of enterprises in 17 OECD countries from 1981 to 1996. They drew an inverted U-shaped line to describe the relationship between financial support and tax preferences from the government and the increase of private R&D investment. "
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    ABSTRACT: Background In recent years, China has experienced tremendous growth in its pharmaceutical industry. Both the Chinese government and private investors are motivated to invest into pharmaceutical research and development (R&D). However, studies regarding the different behaviors of public and private investment in pharmaceutical R&D are scarce. Therefore, this paper aims to investigate the current situation of public funding and private investment into Chinese pharmaceutical R&D. Methods The primary data used in the research were obtained from the China High-tech Industry Statistics Yearbook (2002–2012) and China Statistical Yearbook of Science and Technology (2002–2012). We analyzed public funding and private investment in five aspects: total investment in the industry, funding sources of the whole industry, differences between provinces, difference in subsectors, and private equity/venture capital investment. Results The vast majority of R&D investment was from private sources. There is a significantly positive correlation between public funding and private investment in different provinces of China. However, public funding was likely to be invested into less developed provinces with abundant natural herbal resources. Compared with the chemical medicine subsector, traditional Chinese medicine and biopharmaceutical subsectors obtained more public funding. Further, the effect of the government was focused on private equity and venture capital investment although private fund is the mainstream of this type of investment. Conclusions Public funding and private investment play different but complementary roles in pharmaceutical R&D in China. While being less than private investment, public funding shows its significance in R&D investment. With rapid growth of the industry, the pharmaceutical R&D investment in China is expected to increase steadily from both public and private sources.
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    • "For example, Hartley (2006) notes that " [d]efence R&D has obvious opportunity costs through the use of scarce scientific personnel and assets that could be used on civilian research. " Also, Gullec and van Pottelsberghe (2003) analyze a group of OECD countries and find that defense R&D indeed has a crowding-out effect on civilian R&D. The spillover effect refers to the case in which defense R&D contributes to the performance of civilian R&D and hence has a positive effect on growth. "
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    • "A 10% fall in the cost of R&D stimulates a 1% and 10% rise in the level of R&D in the short and long run, respectively. Guellec and Van Pottelsberghe (2003) investigate the impact of R&D tax incentives on business R&D in seventeen OECD countries and reach similar results showing that tax incentives can effectively stimulate business R&D. Wu (2005) employs data from six states (Arizona, California, Colorado, Illinois, Massachusetts, and New Jersey) in the U.S. to examine the effects of state R&D tax credits on private R&D expenditure within each state. "
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