Sources of heterogeneity in the impact of subsidies on R&D investment: Evidence from R&D-active UK firms

Mehmet Ugur () and Eshref Trushin

No 19932, Greenwich Papers in Political Economy from University of Greenwich, Greenwich Political Economy Research Centre

Abstract: Due to externalities associated with research and development (R&D) investment, public subsidies are expected to have additionality effects on business R&D expenditures. Yet, the existing evidence reflects a high degree of heterogeneity and the latter has remained largely unexplained in a systematic manner. This paper aims to bridge this knowledge gap by drawing on the theory of incentives. We hypothesize that subsidies are less likely to have additionality effects when receiving firms are large or the economy is in downturn. Results based on matching and double robust estimations with panel data of 43,650 UK firms from 1998 to 2012 lend strong support to our hypotheses. Robust to different estimation methods and subsamples, our findings support more focused R&D subsidy policy, which could better target smaller firms and start-ups.

Keywords: Treatment effect; R&D subsidy; innovation; additionality; UK (search for similar items in EconPapers)
Date: 2018-03
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