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


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
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    • "While patents are especially relevant in the field of biotechnology, they are generally a well-established indicator for knowledge production in innovation research [6]. Moreover, since research in biotechnology is to a large extent publicly funded, this sector is a good candidate for analysing the effects of different public funding schemes as instruments of research policy [7] [8]. "
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    ABSTRACT: Over the recent past, we can observe increasing interest in the ex-ante impact assessment of research policy, mainly related to the growing importance of accountability and limited budgets. However, existing methods often lack quantitative scenarios that go beyond extrapolations of current trends. This study addresses this research gap by proposing an empirical agent-based model (ABM) of knowledge generation in a system of researching firms. With our emphasis on the empirical calibration of ABMs, we intend to conduct scenario simulations applicable to real world contexts – in this study illustrated by means of an ABM on the Austrian biotechnology sector. In our model, effects of public research policy on the knowledge-related system output – measured by the patent portfolio – are under scrutiny. By this, the study contributes to the literature on ABMs in several aspects: Building on an existing concept of knowledge representation, we advance the model of individual and collective knowledge generation in firms by conceptualising policy intervention and corresponding output indicators. Furthermore, we go beyond symbolic ABMs of knowledge production by using empirical patent data as knowledge representations, adopt an elaborate empirical initialisation and calibration strategy using company data, and utilise econometric techniques to generate a sector-specific fitness function that determines the model output. With this model, we are able to conduct scenario analyses on effects of different public research funding schemes in the field of biotechnology. The results demonstrate that an empirically calibrated and transparent model design increases credibility and robustness of the ABM approach in the context of ex-ante impact assessment of public research policy.
    Full-text · Conference Paper · Sep 2015
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    • "Indeed, it became noticeable the need to analyse the interaction between different instruments used as well as the effect of the instability on the effectiveness of the policies.Zhu et al. (2006)for example, finds a complementary relationship between subsidies and tax incentives. From their study, Guellec and van Pottelsberghe de laPotterie (2003Potterie ( , 1997) conclude that subsidies and tax incentives are substitutes among them, i.e., the use of one affects the effectiveness of the other in private spending. Regarding the stability of policies, the scant results that exist indicate that the more volatile a policy, the lower your efficiency in private expenditure on R&D with private funding (e.g.,Zhu et al., 2006). "
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    ABSTRACT: Investment in R&D is established as an important factor to economic growth and governments aim to encourage the national level of R&D using different policy instruments. The purpose of this paper is to obtain new evidence about a fundamental question of empirical studies on innovation policy. Does public spending on R&D contributes to increase private finance to R&D, that is, it has an additionality effect, or alternatively it substitutes the private investment? This study contributes to this debate, analysing the impact of different forms of public funding to R&D on R&D performed and financed by the private sector. Doing so we add to previous research by exploring how the policy-mix and instability are likely to influence the effectiveness of the instruments. This work applies the Arellano-Bond difference GMM estimator to analyse the impact of public support as a stimulus to private funded R&D in 16 OECD countries over 27 years (1981 to 2008), being unique in this respect. After studying the results of a baseline model, we extend the analysis in order to explore successively, the existence of non-linear effects, the effects of the instability of the instruments over time, and the interaction between the various incentive instruments.
    Full-text · Article · Jan 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.
    Full-text · Article · Jun 2014 · Health Research Policy and Systems
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