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Long run effect of public grants on the R&D investment: A non-stationary panel data approach

Inmaculada Álvarez, Chihwa Kao and Desiderio Romero-Jordán

No 2016/04, Efficiency Series Papers from University of Oviedo, Department of Economics, Oviedo Efficiency Group (OEG)

Abstract: From a macroeconomic point of view, the relationship between R&D investment and growth is well-known. At a firm level, extensive literature exists that analyzes the determinants behind R&D investment decision-making –basically comprising economic and financial factors-. Using cointegration techniques, the aim of this paper is analyze the long run effect of public grants on R&D investment for the Spanish case. Classifying the sample according to cointegration, we eliminate the possible existence of spurious correlation using the most suitable econometric techniques. Results in the long-run show that sales possesses a high pro-cyclical component with an elasticity of approximately 0.6. Subsidies generate additionality with an elasticity ranging from 0.17 to 0.2. Nevertheless, the capacity to promote investment for each euro of public funds is greater than the tax credit, with elasticities which can reach 0.7. In addition it worth highlight that we observe a higher impact of subsidies in cointegrated firms that are those with more investment in I+D.

Pages: 28
Date: 2016
New Economics Papers: this item is included in nep-ino, nep-sbm and nep-tid
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