Does Firm Size make a Difference? Analysing the Effectiveness of R&D Subsidies in East Germany

Abstract

We analyse the impact of public subsidies on private sector research and development (R&D) activity for a sample of East German firms. Using propensity score matching, our empirical results indicate that subsidized firms indeed show a higher level of R&D intensity (R&D expenditures relative to total turnover) and a higher probability for patent application compared with non‐subsidized firms. We find that, on average, the R&D intensity increases from 1.5% to 3.9%. The probability of patent application rises from 20% to 40%. These results closely match earlier empirical findings for East Germany. Given the fact that the East German innovation system is particularly driven by small‐ and medium‐sized enterprises (SMEs), we draw special attention to the effectiveness of R&D subsidies for this latter subgroup. Here, no specific empirical evidence is available so far. Our findings indicate that policy effectiveness also holds for private R&D activity of SMEs, with the highest increase in terms of R&D intensity being estimated for microbusinesses with up to ten employees.

Evaluation of government‐supported provincial innovation competitiveness—Evidence from China

“…Patent grants, technology market turnover, and new product sales revenues are output variables. In addition to creating an institutional environment conducive to technological innovation, the government also should guide and motivate social technological innovation activities by relevant innovation policies, so as to promote R&D investment significantly (Aerts & Schmidt, 2008;Alecke, Mitze, & Reinkowski, 2012;Bloom, Griffith, & Reenen, 2002;Dominique & Bruno, 2000;Guan & Yam, 2015;Wiesenthal, Leduc, & Haegeman, 2012). Government innovation policy measures a government's policy support for corporate innovation activities, which will stimulate innovation and productivity of enterprises (Camagni & Capello, 2013;OECD, 2007).…”

“…Government innovation policy measures a government's policy support for corporate innovation activities, which will stimulate innovation and productivity of enterprises (Camagni & Capello, 2013;OECD, 2007). In addition to creating an institutional environment conducive to technological innovation, the government also should guide and motivate social technological innovation activities by relevant innovation policies, so as to promote R&D investment significantly (Aerts & Schmidt, 2008;Alecke, Mitze, & Reinkowski, 2012;Bloom, Griffith, & Reenen, 2002;Dominique & Bruno, 2000;Guan & Yam, 2015;Wiesenthal, Leduc, & Haegeman, 2012). Since technological innovation is an economic variable that is difficult to quantify, patent grants directly reflect a region's innovation ability.…”

The effect of public support on senior manager attitudes to innovation

“…Third, we include R&D intensity, measured via the proportion of R&D employees to total employees in 2012, and human capital, measured via the proportion of employees that had a bachelor degree or higher in 2012. We expect firms with higher R&D intensities and human capital to possess greater levels of absorptive capacity and innovativeness, and thus be more likely to seek an innovation voucher and possess innovation-orientated attitudes (Alecke et al, 2012). Fourth, we include export, a dummy variable equal to one if the firm exported during 2012, as exporting firms are often more innovative, potentially due to the learning that occurs from participation in export markets, and thus, may be more likely to seek innovation vouchers and possess innovation-orientated attitudes (Golovko and Valentini, 2011).…”

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

“…In other words, the R&D grants may have allowed firms to continue their R&D at a constant level rather than cutting it back. Alecke et al (2012) apply a matching estimator any find that SMEs, especially the microsized firms, show an increase in R&D intensity as a result of subsidies. Alecke et al (2012) also find that subsidies increase the probability of patent applications.…”