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Additionality effects of public R&D funding: âRâ versus âDâ
Abstract
Several studies have already addressed the question whether R&D subsidies lead to additionality effects or crowd out firms’ private investment. This paper provides insights into the impact of R&D grants on private R&D expenditure, distinguishing between research and development activities. We employ parametric treatment effects models and IV regression methods. The hypothesis that firms respond differently to R&D subsidies depending on the nature of the R&D activity is confirmed. R&D subsidies are found to mainly contribute to an increase in development expenditure. By contrast, crowding out effects for the research part cannot be rejected.
... R&D type is another source of effect-size heterogeneity reported in the literature. For example, Aerts and Thorwarth (2008) report that R&D subsidies tend to reduce firm investment in basic as opposed to development research. In contrast, Clausen (2009) and report that R&D subsidies tend to induce additionality effects on firm investment in basic research expenditures, but the effect on development research expenditures is either negative in the former or insignificant in the latter study. ...
... In line with the common practice, we estimate the effects of the composite subsidy on aggregate measures of R&D inputs such as privately funded R&D and employment of R&D personnel. In line with Aerts and Thorwarth (2008) and , we also estimate the effects of the composite subsidy on specific R&D components such as basic, applied, experimental as well as R&D capital expenditures and extramural R&D. Both alignment strategies are informed by the literature on whether R&D types are complements or substitutes (Griliches, 1979;Mansfield, 1980;and Link, 1982). ...
... For example,Clausen (2009) estimates the effects of a specific subsidy (e.g., a basic R&D or development R&D subsidy) on an aggregate measure such as privately funded R&D. On the other hand,Aerts and Thorwarth (2008) and estimate the effects of a composite intervention on basic and development research investment separately, with a view to establish if the additionality effects differ between the two R&D types. ...
Drawing on the theory of contracts and Schumpeterian models of innovation, we argue that direct public support for business R&D may deliver sub-optimal outcomes if firms are risk-averse and their R&D gaps are heterogeneous and unobservable for the funder. Using observable proxies for risk aversion and R&D gaps, we report that the average treatment effect (ATT) is positive but conceals a high degree of heterogeneity. The ATT is: (a) insignificant or very small when the perceived risk of R&D investment is high during crisis episodes or when the investment is in basic research; (b) insignificant among larger and older firms and firms closer to the R&D frontier; and (c) positive and larger than the average among small and young firms and firms further away from the R&D frontier. Our findings reveal some conundrums in the use of R&D subsidies as an innovation policy tool: The welfare case for R&D subsidies is stronger during economic downturns, when the investment is in basic R&D and when firms have a higher probability of innovation success; but the subsidy is less likely to increase business R&D under these conditions. Therefore, we suggest that innovation prizes for successful innovations may be a more effective intervention for generating additional firm investment in R&D.
... Previous studies (e.g. Czarnitzki and Fier, 2002;Aerts and Thorwarth, 2008;Czarnitzki and Lopes Bento, 2011;Hud and Hussinger, 2015) identify age, size of the firm, previous experience of receiving subsidies, the qualification of human capital, patent stock, past R&D activities and export intensity as determinants of subsidy provision. In general, government tends to select firms that are already best performers (e.g. higher level of exportation, patent stock, skilled job and R&D activities), based on "picking the winner" principle. ...
... The export intensity ratio after project implementation shows a positive impact on the probability of having an application funded, as expected according to the scientific literature (cf. Aerts and Thorwarth, 2008; Czarnitzki and Lopes Bento 2011). Indeed, one goal of the program is to boost firms' presence in international markets. ...
... Previous experience in the PIIS procedure increases by 19.8% the probability of having an application approved. These findings could be linked with "pick the winner" principle, in which experience in subsidies is a sign of firm best performance and successful project (see e. g. Aerts and Thorwarth, 2008;Aschhoff, 2009;Hud and Hussinger, 2015). Nevertheless, in our model this conclusion is not necessarily good news. ...
In 2015, the Regional Studies Association (RSA) celebrated 50 years and one of the keywords of this (hi)story is “impactful”. Having an impact requires to be able to bring research-based knowledge to policymakers moving out of the academic ‘Ivory Tower’ and engaging in policy debate, thus acknowledging the societal role of research. Yet, this requires changing the traditional approach to research, academic conferences, publications and scientific workshops.
This volume aims to tackle the challenge of a research-policy dialogue addressing the case of the Cohesion Policy (CP), the most important EU regional policy and, probably, the most complex policy in the world for economic, social, geographical, cultural, administrative and legal reasons. This challenge is even more relevant in this period when Europe is showing difficulties to fully recover from the financial and economic crisis that started in 2008, and the following political crisis that culminated with ‘Brexit’. In this context, researchers are called to be ‘impactful’, proposing research-based policy lessons that can feed the political debate.
In a period of crisis, research-policy dialogue is needed; however, how to make it happen is not easy. This volume adopts a ‘policy learning’ perspective proposing sixteen different research-based policy lessons to contribute to the debate on policy learning in the case of the EU Cohesion Policy, and beyond.
... For example, Clausen (2009) and Czarnitzki, Hottenrott, and Thorwarth (2011) report that input additionality is more likely when the investment is in basic research. In contrast, Aerts and Thorwarth (2008) report crowding-out effects as the negative effect of return uncertainty in the case of basic research investment dominates the positive effect of the subsidy that ameliorates the financial constraint. Similar evidence has been reported with respect to the effects of R&D subsidies during crisis periods (Hud and Hussinger 2015). ...
... Hence, we assume that a subsidy in any year will affect the aggregate measures and the sub-components of the R&D investment in the year or thereafter in the same direction. A similar identification/estimation strategy has been adopted in past research, of which Aerts and Thorwarth (2008) and Czarnitzki, Hottenrott, and Thorwarth (2011) are two examples. ...
Drawing on the theory of contracts and Schumpeterian models of innovation, we demonstrate that information asymmetry and risk aversion are conducive to effect-size heterogeneity and sub-optimal allocation of R&D subsidies. Utilising an unbalanced panel of 43,650 British firms from 1998 to 2012 and an entropy balancing methodology, we find that R&D subsidies are less likely to generate additionality effects when: (a) firms are larger, older, or more R&D-intensive; and (b) investment in basic research or during crisis episodes is considered. We also report that over 85% of the subsidies are allocated to large, old and R&D-intensive firms that do not deliver additional R&D investment. Our findings reveal a policy conundrum: the case for R&D subsidies is stronger during economic downturns, when R&D investment is in basic research and when firm age, size and R&D intensity reflect success in converting R&D investment into innovative product lines; but the subsidy is less likely to increase business R&D under these conditions.
... Distinguishing research from development is important, because the two components of R&D differ in many regards, including their purposes, knowledge bases, people involved, required management styles, and impact on future firm growth (Barge-Gil and López, 2014a). For example, Aerts and Thorwarth (2009) find that R&D subsidies contribute to an increase in development expenditures instead of research expenditures. Barge-Gil and López (2014b) find that demand pull and appropriability have a higher effect on development, while technological opportunity is more influential for research. ...
... Overall, the results indicate that the tax incentive program induces firms to prefer development activities over research activities, which eventually leads to an increase in the proportion of development expenditures in total R&D. The findings are consistent with the results of Aerts and Thorwarth (2009), who found that R&D subsidies only contribute to an increase in development expenditures. The overall effects also mask substantial heterogeneity. ...
This paper investigates the behavioral additionality effects of a unique high‐ and new‐ technology enterprise (HNTE) program in China. The program provides a reduced corporate income tax to certificated HNTEs. By distinguishing research expenses from development costs, we examine if the tax incentive program affects firms’ composition of R&D investment, based on a sample of Chinese listed firms. The results indicate that the tax incentive program encourages firms to focus more on development than on research. The effects are also found to be heterogeneous among the first‐time, repeated, and one‐time certification users. The results imply that tax incentives prompt firms to invest in short‐term development opportunities with promising private returns. Conversely, they are less likely to stimulate risky research projects with potential high rates of social and long‐term economic returns. Our study highlights the importance of understanding the behavioral additionality effects for innovation policy evaluations and better policy designs.
... Also, funding agencies may consider such experience as a sign of quality (Hottenrott & Lopes-Bento, 2014). We include lagged values for the outcome variables-R&D effort and Openness-to control for persistence in the knowledge-sourcing behavior of companies, an element considered necessary in explaining firms' incentives to participate and in the awarding choices of agencies (Aerts & Thorwarth, 2008;Blanes & Busom, 2004). As indicated by Gonzalez and Pozo (2008), matching treated and non-treated firms with similar R&D pretreatment behavior potentially contributes to correctly assessing the impact of R&D subsidies. ...
This article presents a novel conceptual framework that uses the notion of knowledge sourcing to explain how firms realize benefits from R&D subsidies in terms of innovations. The study considers two dimensions of the firm’s knowledge sourcing: its R&D effort and level of openness to technology markets. This article proposes that the policy-induced effects of R&D subsidies on the knowledge-sourcing process increase firms’ innovation outcomes, thus making this policy intervention effective in promoting innovation. By using panel data from Spanish manufacturing firms, this article presents evidence consistent with the hypothesis that by changing the knowledge sourcing of firms, National R&D subsidy programs in Spain also favor more firm innovation, measured by patent applications and new product launches. It is also documented that the granting of R&D subsidies does not affect firm innovation directly but rather through inducing changes in the firm’s R&D effort and openness to technology markets.
JEL CLASSIFICATION: O32, O36, O38
... Focusing on the determinants of R&D composition, Barge-Gil and López (2014b) found that demand pull and appropriability have a higher effect on development, while technological opportunity is more influential for research. As for the effect of public funding, Aerts and Thorwarth (2009) found that R&D subsidies mainly contribute to an increase in development expenditures. ...
The explosion of research and development (R&D) expenditures in China brings a puzzling fact that the proportion of research in R&D is extremely small, and thus the proportion of development is large. This article distinguishes research from development in R&D and investigates the heterogeneous effects of the two components on the performance of Chinese listed firms. Using a generalized propensity score matching approach with continuous treatments, we present non-linear relationships between R&D composition and firm performance. While development-oriented firms benefit more from an increase in profit than a growth in productivity, orientation toward research contributes more to productivity gains than to profitability. Research and development activities are found to be complementary in promoting firm performance. The results suggest the existence of optimal proportions of the components of R&D for maximizing firm performance.
... But the science sector was also to be examined carefully as an important sector where pure research, applied research, and experimental development are conducted and their results applied in the industrial sector, as indicated by Mansfield (1991Mansfield ( , 1998. Moreover, the science sector is often financed from public funds because of the character of conducted studies, as Aerts and Thorwarth (2008) confirm. That is why this sector was chosen as the research object in this study. ...
The purpose of this research was to determine and analyze diversity in various features of R&D projects implemented in the science sector in Poland, financed mostly from public funds. More exactly, the following aspects of R&D projects implemented in the science sector in Poland were examined: the relation between the actually achieved and the initially set goal, the project management methodologies and project time management methods used, features of the project team, the relation between the plan and the actual project realization and management difficulties encountered in practice. These aspects and their diversity were examined in the context of the whole country, of various fields of science and various research units implementing pure research (the ‘R’ area) or applied research and experimental development (the ‘D’ area). The research was conducted by means of survey methodology covering a sample of participants of R&D projects in the science sector in Poland. The results were analyzed by means of statistical methods (which constitutes a clear novelty with respect to the existing literature on R&D projects) and statistically significant phenomena gave rise to several important conclusions on how R&D projects implemented in the science sector are managed and what their realization looks like in various fields of science and various institutions, in a relatively new EU members state and a former communist country like Poland. These conclusions may be the basis for important hypotheses (which require further research) on the project management quality in the science sector in Poland and in similar countries, which is closely linked to the problem of public money allocation, its efficient spending and control. Also, practical suggestions on improvement measures in the science sector with respect to R&D projects, limited not only to countries like Poland, but of a more general nature, are formulated.
... Over the last few years, this topic has received a growing interest due to the availability of new data from CIS surveys. Many empirical studies have focused on analyzing the relationship between public funding and the composition of R&D (seeAerts and Thorwarth, 2009;Clausen, 2009;Czarnitzki et al., 2011analyze financial constraints associated with R&D activities. They find a higher negative effect of financial constraints on research. ...
Using firm-level data, this article analyzes the differentiated effect of research and development on different innovation
outputs. Although research activities and development activities are different in many aspects, most empirical studies have
treated them as a homogeneous activity, mainly due to the lack of data. Our results show that both activities contribute to
the innovation success of a firm, but we also find interesting differences. Particularly, we find that development activities
are more important for product innovation and sales from new products. When analyzing industry patterns, we find that the
payoffs from development and specifically from research are higher in low-tech industries.
Presently, research and development (R&D) and innovation have been discussed in diverse ways. However, the nexus of subsidy was relatively unexplored in emerging economies. Furthermore, the effects of age are observed to be inconclusive. Considering 1272 selected Chinese manufacturing firms over the period 2007–2017, we employ fixed effect models to examine the effects of Subsidy on R&D and innovation and whether age was a moderating factor. Consistent with the sandwich theoretical proposition, this article found that there exists a significantly transitive relationship between government subsidy, R&D, and innovation. Whereas young firms perform better in the short-term, state-owned firms outweigh the private ones in performance. Subsequently, age alternatively moderates the R&D and innovation relationship from the perspective of subsidy. Though subsidy is a short-term determinant of R&D, it has a long-term relationship with innovation. In contrast, R&D and innovation have short-term effects based on lag computations. Overall, our findings suggest that government subsidy plays a crucial role in R&D and innovation for emerging markets. We discuss our results within the theoretical frameworks of sandwich, the economics of subsidy, and behavioral theory of R&D.
El objetivo del estudio es el análisis del impacto que tienen las ayudas públicas a la I+D+i de las empresas sobre sus estrategias tecnológicas y los resultados económicos. Para ello, se adopta una estrategia de investigación con dos componentes: en primer lugar, se analizan los impactos que las ayudas producen en los resultados económicos de las empresas receptoras de fondos públicos para la innovación. Y, en segundo lugar, se estudia el impacto de las ayudas sobre los hábitos innovadores de las empresas, de manera que se resuelvan las dificultades que las empresas encuentran en su relación con el sistema de innovación.
Several empirical studies have analyzed which firm characteristics influence government evaluators in the decision to select specific firms to participate in Research and Development and Innovation subsidy programs. However, few authors have provided a precise analysis about the selection process of applications submitted for public support. The aim of the present article is to assess differences in investment project characteristics (expected impact) between firms with approved and non-approved applications and to understand which kinds of projects are selected for a subsidy. The analysis is focused on the case study of applications submitted to the Portuguese Innovation Incentive System (SI Innovation) between 2007 and 2013. The impact variables under study are those used in the selection procedure to grant the firm a subsidy, namely the expected impact on exports, value creation, productivity, patent application and qualified employment. Using a counterfactual analysis and Propensity Score Matching estimators, the results show that firms with approved applications are those that expect to invest more and forecast a higher increase in exports and productivity as the result of the investment project. However, these firms in comparison with the control group (those with non-approved applications) have investment projects with a lower contribution to growth and lower economic efficiency (return on investment in terms of productivity). The conclusions of this study could be useful for policy-makers since it provides evidence about firms’ strategic choice concerning investment projects submitted for an Innovation subsidy.
This chapter (Chapter 18) is devoted to the empirical models of
firms’ R&D. This literature is still growing due to the increasing availability of micro-data. Taking this fact into account, the main purpose of this chapter is to provide an overview of three important topics covered by the recent literature: the determinants of firms’ R&D investment, the link between R&D, innovation and productivity, and the analysis of the R&D black box. This chapter is presented as an invitation to industrial organization practitioners, both theorists and applied, to cross the bridge (and to change sides) between theory and applications.
The determinants of R&D are an important topic of innovation studies. The classical Schumpeterian hypotheses about the influence of size and market power have been complemented with the role played by industry determinants, such as demand pull, technological opportunity and appropriability, in determining R&D investments. However, R&D has always been considered as a whole, even though research and development activities differ in many aspects. We take advantage of a new panel database of innovative Spanish firms (PITEC) to distinguish between research and development efforts of firms. We analyze the differentiated role played by traditional R&D determinants in driving research and development. Results show that demand pull and appropriability have a higher effect on development, while technological opportunity is more influential for research. Differences are statistically significant, important in magnitude, and robust to the use of different indicators for demand pull, technological opportunity and appropriability, and to several robustness checks.
This survey examines the empirical literature on the relationship between public R&D
subsidies and private R&D investment over the past five decades. The survey reveals a considerable heterogeneity of empirical results that cannot be explained fully by methodological issues. We aim to provide further explanations of the possible causes of that heterogeneity. In particular, we emphasise a set of issues that, in our view, are critical to understanding the potential effect of public R&D subsidies on private R&D spending. Special attention is paid to the dynamic aspects and composition of firm R&D, the constraints faced by the firm (such as financial constraints), and the amount and source of public subsidies. None of these issues have been investigated in depth. We formulate a set of research assumptions to guide future empirical research in this field.
This study investigates the effects of public R&D funding on the funded firms in Finland. It focuses on the input additionality, the output additionality of public funding and the effect an increase of innovation effort has on the innovation output of firms. The data set for this analysis is taken from the Community Innovation Survey which allows us to compare the results obtained with results obtained for other countries. For reasons discussed in the study the Finnish results are checked against results obtained for analyses of the Community Innovation Survey in Germany. Concerning the overall effects of public funding in Finland we can draw quite positive conclusions based on our empirical analysis: First, on average, public funding increases the private innovation effort of funded firms, in both nominal and real terms. Second, on average, public funding increases the innovation output of funded firms. Public funding yields the largest effects when it stimulating collaborative innovation activities. Finally, an increased private innovation effort increases innovation output on average.
The objective of this paper is to contribute to the empirical literature that evaluates the effects of public R&D support on private R&D investment. We apply a matching approach to analyze the effects of public R&D support in Spanish manufacturing firms. We examine whether or not the effects are different depending on the size of the firm and the technological level of the sectors in which the firms operate. We evaluate the effect of R&D subsidies on the subsidized firms, considering both the effect of subsidies on firms that would have performed R&D in the absence of public support and also the effect of inducement to undertake R&D activities. We also analyze the effect that concession of subsidies might have on firms which do not enjoy this type of support. The main conclusions indicate absence of “crowding-out”, either full or partial, between public and private spending and that some firms – mainly small and operating in low technology sectors – might not have engaged in R&D activities in the absence of subsidies.
Ostdeutsche Unternehmen werden seit der deutschen Wiedervereinigung bei staatlichen Subventionsprogrammen besonders berücksichtigt. Diese Studie untersucht die Auswirkungen der Forschungs- und Technologiepolitik auf die Innovationsaktivitäten von Unternehmen der neuen Bundesländer. Es stellt sich die Frage, ob die Teilnehmer der Fördermaßnahmen tatsächlich mehr in Innovationen investieren oder ob sie private Gelder gegen die öffentlichen Mittel substituieren. Zur Analyse verwende ich einen Matching–Ansatz. Es zeigt sich, dass die ostdeutschen Unternehmen ohne die Zuteilung der öffentlichen Gelder deutlich weniger Innovationsaktivitäten unternommen hätten. Since the German reunification, Eastern German firms are prioritized in public policy schemes. This study analyzes the impact of public technology policies on innovation of firms located in Eastern Germany. The main question is whether public funding stimulates innovation activities or whether crowding–out effects between public and private means occur. A non–parametric matching approach is applied to investigate this question empirically. It turns out that the subsidized Eastern German companies would have invested remarkably less if they had not participated in public innovation policy schemes.
This study analyzes the effects of public R&D policy schemes on the innovation activities of firms in Eastern Germany. The main question in this context is whether public funds stimulate R&D activities or simply crowd out privately financed R&D. Empirically, we investigate the average causal effects of all public R&D schemes in Eastern Germany using a nonparametric matching approach. Compared to the case in which no public financial means are provided, it turns out that firms increase their innovation activities by about four percentage points.
We introduce a new hybrid approach to joint estimation of Value at Risk (VaR) and Expected Shortfall (ES) for high quantiles of return distributions. We investigate the relative performance of VaR and ES models using daily returns for sixteen stock market indices (eight from developed and eight from emerging markets) prior to and during the 2008 financial crisis. In addition to widely used VaR and ES models, we also study the behavior of conditional and unconditional extreme value (EV) models to generate 99 percent confidence level estimates as well as developing a new loss function that relates tail losses to ES forecasts. Backtesting results show that only our proposed new hybrid and Extreme Value (EV)-based VaR models provide adequate protection in both developed and emerging markets, but that the hybrid approach does this at a significantly lower cost in capital reserves. In ES estimation the hybrid model yields the smallest error statistics surpassing even the EV models, especially in the developed markets.
Investigates empirically the degree to which federal R&D displaces private R&D. The analysis is based on a sample of 174 manufacturing firms. It is found that the firm's allocation of its R&D expenditures is not independent of the amount of federal funds it receives. Specifically, federal research subsidies displace existing research activities in favor of additional development projects.
Abstract The large presence of foreign-owned companies in Flanders, especially in R&D intensive industries, combined with a limited number of foreign affiliates receiving the lion’s share of Flemish R&D subsidies, raises questions about the impact of foreign ownership on the effectiveness of public ,R&D funding. Semi-parametric matching ,confirms ,positive input additionality effects, irrespective of the ownership structure. Next, the counterfactual, privately financed R&D expenditure was disentangled from the publicly induced, additional R&D expenditure. The results show that in general, both R&D expenditure components are translated into more R&D output, but foreign-owned companies realize more innovative output and capture economic,value as well. Keywords:R&D subsidies, R&D expenditure, innovative performance, economic value creation, foreign ownership, multinational, policy evaluation, semi-parametric
We empirically test whether public R&D subsidies crowd out private R&D investment in Flanders and Germany, using firm level data from the Flemish and German part of the Community Innovation Surveys (CIS III and IV). Both the non-parametric matching estimator and the conditional difference-in-differences estimator with repeated cross-sections (CDiDRCS) clearly indicate that the crowding-out hypothesis can be rejected: funded firms are significantly more R&D active than non-funded firms. In the domain of additionality effects of R&D subsidies, this paper is the first to apply the CDiDRCS method.
Proposed cutbacks in government science funding have caused many to expect that the rate of scientific progress will significantly decline. Before the magnitude of the decline can be estimated, a preliminary question must be answered: what is the extent to which private funding of science may be expected to fill the gap left by the declining government funding? Using data on government and private funding of science, preliminary estimation indicates that past government funding of science has not "crowded out" private funding of science. If this finding is supported by further research, it would indicate that private funding could not be expected to replace lost federal funding of science. Copyright 1999 by Oxford University Press.
This study focuses on the impact of innovation policies and R&D collaboration in Germany and Finland. We consider collaboration and subsidies as heterogeneous treatments, and perform an econometric matching to analyze R&D and patent activity at the firm level. In general, we find that collaboration has positive effects. In Germany, subsidies for individual research do neither exhibit a significant impact on R&D nor on patenting, but the innovative performance could be improved by additional incentives for collaboration. For Finnish companies, public funding is an important source of finance for R&D. Without subsidies, recipients would show less R&D and patenting activity, whilst those firms not receiving subsidies would perform significantly better if they were publicly funded. Copyright © 2007 John Wiley & Sons, Ltd.
Exxon Mobil and ConocoPhillips stock price has been predicted using the difference between core and headline CPI in the United States. Linear trends in the CPI difference allow accurate prediction of the prices at a five to ten-year horizon.