Who Gets the Money? The Dynamics of R&D Project Subsidies in Germany

Abstract

Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW.Download this ZEW Discussion Paper from our ftp server:ftp://ftp.zew.de/pub/zew-docs/dp/dp08018.pdf Non-Technical SummaryEach year over three thousand R&D projects in more than two thousand firms received public grants from the German Federal Government. However, the number of subsidized firms does not reveal, whether it is always the same group of companies that receive funding, or whether the beneficiaries change over time. Understanding the temporal structure of subsidy distribution could help future research explain the effects and effectiveness of subsidies. In the face of shrinking government budgets and intensified international competition in the field of technology, knowing and increasing the efficiency of innovation policies has become crucial.The focus is set on a specific public support scheme, the German Federal Government's non-defense R&D project funding scheme (DPF). This is the most important tool used by the German government to fund R&D in private businesses. In 2005, firms received over 700 million euros under this scheme. The importance of this funding scheme will increase in Germany in the coming years since it is the main distribution channel for the new High-Tech strategy launched by the Federal Government (BMBF, 2006b).The aim of this paper is to analyze the structure of the firms receiving R&D subsidies over time. In particular, I tackle the question of whether the same firms enjoy subsidies over time. There is still very little empirical evidence on the dynamics of firms' participation in public funding schemes. In order to investigate the persistence of funding it is necessary to distinguish between two types of persistence. One is simply due to the fact that funded projects may run for more than one calendar year. The other is due to newly approved projects. In the DPF scheme, approved projects last on average for about three years.The empirical part of this paper is based on an annual innovation survey, the German part of the Community Innovation Survey (CIS). This is merged with the DPF database in order to identify a firm's subsidy status in each year. The sample consists of over 6,000 different firms covering the manufacturing and knowledge-intensive service sectors over the time period from 1994 to 2004.Transition rates are calculated which describe the participation in the DPF scheme between two periods in a univariate context. The share of innovating firms which enter the funding scheme is extremely low. But if a firm has made ...

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