Does Firm Size make a Difference? Analysing the Effectiveness of R&D Subsidies in East Germany

Björn Alecke, Reinkowski Janina, Timo Mitze and Gerhard Untiedt
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Reinkowski Janina: Ifo Institute for Economic Research,Dresda, Germany

German Economic Review, 2012, vol. 13, issue 2, 174-195

Abstract: We analyse the impact of public subsidies on private sector research and development (R&D) activity for a sample of East German firms. Using propensity score matching, our empirical results indicate that subsidized firms indeed show a higher level of R&D intensity (R&D expenditures relative to total turnover) and a higher probability for patent application compared with non-subsidized firms. We find that, on average, the R&D intensity increases from 1.5% to 3.9%. The probability of patent application rises from 20% to 40%. These results closely match earlier empirical findings for East Germany. Given the fact that the East German innovation system is particularly driven by small- and medium-sized enterprises (SMEs), we draw special attention to the effectiveness of R&D subsidies for this latter subgroup. Here, no specific empirical evidence is available so far. Our findings indicate that policy effectiveness also holds for private R&D activity of SMEs, with the highest increase in terms of R&D intensity being estimated for microbusinesses with up to ten employees.

Keywords: Propensity score matching; R&D subsidies; East Germany; SME (search for similar items in EconPapers)
Date: 2012
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DOI: 10.1111/j.1468-0475.2011.00546.x

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