Do R&D Subsidies Stimulate or Displace Private R&D? Evidence from Israel

Saul Lach

No 7943, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In evaluating the effect of an R&D subsidy we need to know what the subsidized firm would have spent on R&D had it not received the subsidy. Using data on Israeli manufacturing firms in the 1990s we find evidence suggesting that the R&D subsidies granted by the Ministry of Industry and Trade stimulated long-run company-financed R&D expenditures: their long-run elasticity with respect to R&D subsidies is 0.22. At the means of the data, an extra dollar of R&D subsidies increases long-run company-financed R&D expenditures by 41 cents (total R&D expenditures increase by 1.41 dollars). Although the magnitude of this effect is large enough to justify the existence of the subsidy program, it is lower than expected given the dollar-by-dollar matching upon which most subsidized projects are based. This less than full' effect reflects two forces: first, subsidies are sometimes granted to projects that would have been undertaken even in the absence of the subsidy and, second, firms adjust their portfolio of R&D projects-closing or slowing down non-subsidized projects-after the subsidy is received.

JEL-codes: O32 O38 (search for similar items in EconPapers)
Date: 2000-10
Note: PR PE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (36)

Published as Lach, Saul, 2002. "Do R&D Subsidies Stimulate or Displace Private R&D? Evidence from Israel," Journal of Industrial Economics, Blackwell Publishing, vol. 50(4), pages 369-90, December.

Downloads: (external link)
http://www.nber.org/papers/w7943.pdf (application/pdf)

Related works:
Journal Article: Do R&D Subsidies Stimulate or Displace Private R&D? Evidence from Israel (2002)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:7943

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w7943

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().