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R&D Subsidy and Import Substitution: Growing in the Shadow of Protection

Gustavo de Souza

No WP 2023-37, Working Paper Series from Federal Reserve Bank of Chicago

Abstract: I study the effect of an innovation subsidy on the growth of firms in a developing country. Using administrative microdata for Brazil and difference-in-differences, I find that innovation subsidies drive firm growth by facilitating firm entry into high-tariff markets with domestically produced versions of foreign goods. After receiving an innovation subsidy, firms issue more patents, expand their workforce, and diversify their product line. However, these patents receive minimal citations, while also heavily citing foreign patents. Firms increase imports of foreign inputs and expand their product line towards products with high import tariff. Despite that, in the most conservative estimate, every $1 of innovation subsidy generated $10 in present value wages.

Keywords: R&D; Industrial policy; Industrial development (search for similar items in EconPapers)
JEL-codes: O14 O25 O3 (search for similar items in EconPapers)
Pages: 40
Date: 2023-10-05
New Economics Papers: this item is included in nep-bec, nep-ent, nep-ino, nep-int, nep-sbm and nep-tid
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