No. B99-05

AN EMPIRICAL EVALUATION OF THE EFFECTS OF R&D SUBSIDIES

Abstract

R&D subsidies are a common tool of technology policy, but little is known about the effects they have on the behavior of firms. This paper presents evidence on the effects that R&D subsidies have on the R&D effort of recipients, and on the probability that a firm will participate in a program granting R&D subsidies. The empirical model consists of a system of equations: the first a participation equation; and the second an R&D effort equation. Endogeneity of public funding is controlled for. Estimates are obtained with a cross-section sample of Spanish firms. The main findings are that: 1) small firms are more likely to obtain a subsidy than large firms, probably reflecting one of the public agencyís goals; 2) overall, public funding induces more private effort, but for some firms (30% of participants) full crowding out effects cannot be ruled out, and 3) firm size remains related to effort, whether or not a firm gets public funding.

Isabel Busom
Departament d'Economia Aplicada
Universitat AutÚnoma de Barcelona
08193 Bellaterra, Spain
Isabel.Busom@uab.es

JEL Nos. O31, H32, L52

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