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R & D investment responses to R & D subsidies : a theoretical analysis and a microeconometric study

Klette, Tor Jakob; Møen, Jarle
Working paper
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URI
http://hdl.handle.net/11250/164177
Date
2011-09
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  • Discussion papers (FOR) [556]
Abstract
Subsidies to the Norwegian high-tech industries have traditionally been given as

matching grants , i.e. the subsidies are targeted, and the firms have to contribute a 50 %

own risk capital to the subsidized projects. Our results suggest that grants do not crowd

out privately financed R&D, but that subsidized firms do not increase their privately financed

R&D either. Hence, the own risk capital seems to be taken from ordinary R&D budgets. We

also investigate possible long-run effcts of R&D subsidies, and show that conventional R&D

investment models predict negative dynamic effcts of subsidies. Our data, however, do not

support this claim. On the contrary, there are indications of a positive dynamic effcts, i.e.

temporary R&D subsidies seem to stimulate firms to increase their R&D investments even

after the grants have expired. We propose learning-by-doing in R&D activities as a possible

explanation for this, and present a theoretical analysis showing that such effects may alter the

predictions of the conventional models. A structural, econometric model of R&D investments

incorporating such learning effects is estimated with reasonable results.
Publisher
Norwegian School of Economics. Department of Finance and Management Science
Series
Discussion paper;2011:15

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