R&D Heterogeneity and the Impact of R&D Subsidies*

Innovation, reallocation and growth

Sigurd Mølster Galaasen and Alfonso Irarrazaba

The Economic Journal, 2021, vol. 131, issue 640, 3338-3364

Abstract: In this paper we study the determinants of R&D heterogeneity and the economic impact of R&D subsidies. We estimate a Schumpeterian growth model featuring firms with heterogeneous innovation efficiencies. The model fits well the R&D investment distribution, and the frequency and relative size of R&D performers. Using the model, we study the impact of a Norwegian R&D reform targeting firms with R&D spending below a certain threshold. The size-dependent subsidy increases aggregate R&D investment by 11.7%, but reduces growth and welfare. In contrast, a uniform subsidy stimulates investment, growth and welfare.

Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:oup:econjl:v:131:y:2021:i:640:p:3338-3364.

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