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 .