Discussion Paper Details

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Title: Direct and Cross-Scheme Effects in a Research and Development Subsidy Program

Author(s): Hanna Hottenrott, Cindy Lopes Bento and Reinhilde Veugelers

Publication Date: October 2014

Keyword(s): complementarity, development subsidies, innovation policy, R&D and research subsidies

Programme Area(s): Industrial Organization

Abstract: This study investigates the effects of an R&D subsidy scheme on participating firms? net R&D investment. Making use of a specific policy design in Belgium that explicitly distinguishes between research and development grants, we estimate direct and cross-scheme effects on research versus development intensities in recipients firms. We find positive direct effects from research (development) subsidies on net research (development) spending. This direct effect is larger for research grants than for development grants. We also find cross-scheme effects that may arise due to complementarity between research and development activities. Finally, we find that the magnitude of the treatment effects depends on firm size and age and that there is a minimum effective grant size, especially for research projects. The results support the view that public subsidies induce higher additional investment particularly in research where market failures are larger, even when the subsidies are targeting development.

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Bibliographic Reference

Hottenrott, H, Lopes Bento, C and Veugelers, R. 2014. 'Direct and Cross-Scheme Effects in a Research and Development Subsidy Program'. London, Centre for Economic Policy Research.