Nottingham Centre for Research on
Globalisation and Economic Policy (GEP)

GEP Research Paper 05/38

The Effect of R&D Subsidies on Private R&D

Holger Görg and Eric Strobl

Abstract

This paper investigates the relationship between government support for R&D and R&D expenditure financed privately by firms using a comprehensive plant level data set for the manufacturing sector in the Republic of Ireland . Our empirical strategy combines a non-parametric matching procedure with a difference-in-differences estimator in order to deal with the potential selection problem inherent in the analysis. We find that for domestic plants small and medium sized grants serve to increase private R&D spending, particularly for the former where it can induce R&D spending even beyond the subsidy, while too large a grant may crowd out private financing of R&D. In contrast, evidence for foreign establishments suggests that grant provision causes neither additionality nor crowding out effects of private R&D financing, regardless of the size of the subsidy.

Issued in November 2005.

This paper is available in PDF format .

Nottingham Centre for Research on Globalisation and Economic Policy

Sir Clive Granger Building
University of Nottingham
University Park
Nottingham, NG7 2RD

Enquiries: hilary.hughes@nottingham.ac.uk