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Estimating the additionality of R&D subsidies using proposal evaluation data to control for research intentions

Henningsen, Morten; Hægeland, Torbjørn; Møen, Jarle
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URI
http://hdl.handle.net/11250/194989
Date
2014-04
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  • Discussion papers (FOR) [556]
Abstract
Empirical examination of whether R&D subsidies crowd out private investments has been hampered

by selection problems. A particular worry is that project quality and research intentions may be correlated with

the likelihood of receiving subsidies. Using proposal evaluation data to control for research intentions, we do

not find strong evidence suggesting that this type of selection creates a severe bias. Proposal evaluation grades

strongly predict R&D investments and reduce selection bias in cross‐sectional regressions, but there is limited

variation in grades within firms over time. Hence, in our sample, unobserved project quality is largely absorbed

by firm fixed effects. Our best estimate of the short‐run additionality of R&D subsidies is 1.15, i.e., a one‐unit

increase in subsidy increases total R&D expenditure in the recipient firm by somewhat more than a unit. We

demonstrate, however, that there is measurement error in the subsidy variable. Additionality is therefore likely

to be underestimated.
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FOR
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Discussion paper;18/14

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