ASSESSING THE EFFECT OF PUBLIC SUBSIDIES ON FIRM R&D INVESTMENT: A SURVEY

Abstract

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.

R&D policies for young SMEs: input and output effects

“…The main focus in literature is on input additionality of subsidies. As a consequence, most of the literature addressed the issue of crowding-out effects of subsidized R&D. David et al (2000), Cerulli (2010) andZúñiga Vicente et al (2014) survey the literature on subsidy effects and find that, in general, the results of the reviewed literature vary; possibly also due to different data sources and methods.…”

The impact of R&D subsidies on R&D employment composition

“…Second, the results do not show that R&D subsidies lead to significant changes in the composition of R&D staff in subsidized firms and they rule out the existence of additional effects on the level of education of R&D personnel in the same year as receiving the subsidy. Third, the analysis carried out shows the importance, as Cerulli (2010) and Zúñiga-Vicente et al, (2014) point out, of analysing the impact of public subsidies not only in the short-term but also in the medium and long-term. Our results for the educational composition of R&D personnel suggest that the subsidies have positive effects on the proportion of PhD holders in the R&D staff of a firm in the years after the granting of a subsidy.…”

“…In addition R&D support programmes may be targeted more at medium and long-term objectives (Cerulli, 2010;Zúñiga-Vicente et al, 2014). To recruit but also to fire R&D personnel, particularly highly qualified personnel, may imply high adjustment costs for the firms.…”

“…This literature analyses the impact of policy tools on firms' innovative performance indicators. The empirical evidence (David et al, 2000;García-Quevedo, 2004;Cerulli, 2010;Zúñiga-Vicente et al, 2014) has focused primarily on evaluating the impact of public funding on R&D inputs measured through R&D spending and R&D effort, and on R&D outputs such as patents, sales of new products or the number of new products and processes.…”

“…Consequently, it is important to distinguish between levels of government (Zúñiga-Vicente et al, 2014), since these public agencies may influence firms' demands for specific types of R&D personnel to carry out their R&D projects, depending on the selection criteria of the agencies. We focus our analysis on national and regional R&D subsidies, which are the most important in Spain in terms of the number of recipient firms and budget.…”