Impact and complementarity of public support to business funded R%D: the importance of policy-mix and policy stability

Celeste Varum and Miguel Viegas

Global Business and Economics Review, 2015, vol. 17, issue 4, 430-444

Abstract: Investment in R%D is established as an important factor to economic growth and governments aim to encourage the national level of R%D using different policy instruments. The purpose of this paper is to obtain new evidence about a fundamental question of empirical studies on innovation policy. Does public spending on R%D contributes to increase private finance to R%D, that is, it has an additionality effect, or alternatively it substitutes the private investment? This study contributes to this debate, analysing the impact of different forms of public funding to R%D on R%D performed and financed by the private sector. Doing so we add to previous research by exploring how the policy-mix and instability are likely to influence the effectiveness of the instruments. This work applies the Arellano-Bond difference GMM estimator to analyse the impact of public support as a stimulus to private funded R%D in 16 OECD countries over 27 years (1981 to 2008), being unique in this respect. After studying the results of a baseline model, we extend the analysis in order to explore successively, the existence of non-linear effects, the effects of the instability of the instruments over time, and the interaction between the various incentive instruments.

Keywords: research and development; R%D policy; innovation policy; additionality; private R%D; public support; business funded R%D; policy mix; policy stability; R%D investment; public spending; private finance; OECD countries; incentives. (search for similar items in EconPapers)
Date: 2015
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