Estimating the local average treatment effect of R&D subsidies in a pan-European program

Paul Hünermund and Dirk Czarnitzki

No 541177, Working Papers of Department of Management, Strategy and Innovation, Leuven from KU Leuven, Faculty of Economics and Business (FEB), Department of Management, Strategy and Innovation, Leuven

Abstract: We investigate the eect of Europe's largest multilateral subsidy program for R&D-performing, small and medium-sized enterprises on rm growth. The program was organized under a specic budget allocation rule, referred to as Virtual Common Pot (VCP), which is designed to avoid cross-subsidization between participating countries. This rule creates exogenous variation in treatment status and allows us to identify the local average treatment effect of public R&D grants. In addition, we compare the program's effect under the VCP rule with the standard situation of a Real Common Pot (RCP), where program authorities allocate a single budget according to uniform project evaluation criteria. Our estimates suggest no average eect of grants on rm growth but treatment eects are heterogeneous and increase with project quality. A Real Common Pot would have reduced the cost of policyinduced job creation by 27%. We discuss the implications of our ndings for the coordination of national policy programs within the European Research Area.

Keywords: Joint Programming Iniatives; R&D Policy; Virtual Common Pot; Instrumental Variable Estimation; European Research Area (search for similar items in EconPapers)
Date: 2016-05
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Published in FEB Research Report - MSI_1606

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Working Paper: Estimating the local average treatment effect of R&D subsidies in a pan-European program (2016)
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