R & D investment responses to R & D subsidies : a theoretical analysis and a microeconometric study
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Date
2011-09Metadata
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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.