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Barriers to innovation and subsidy e¤ectiveness

Xulia González (), Jordi Jaumandreu () and Consuelo Pazó ()

No 112, Working Papers from Universidade de Vigo, Departamento de Economía Aplicada

Abstract: This paper explores the effects of R&D commercial subsidies by means of a model of firms’ decisions about performing R&D when some government support can be expected. To estimate the parameters of interest we use an unbalanced panel sample of 1,800 performing and non-performing Spanish manufacturing firms. For the non-performing firms, we compute the trigger subsidies required to induce R&D spending (a measure of market failure). Among the performing …rms, we can detect the ones that would cease to perform R&D if subsidies were eliminated. We also explore the change in the privately financed R&D effort of the performing firms. Results support the claim that market failures are real and subsidies stimulate R&D activities, but also show that actual subsidies go to firms that would have performed R&D otherwise.

Keywords: R&D; innovation; subsidies; thresholds; Tobit model (search for similar items in EconPapers)
JEL-codes: C24 L11 O32 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2001-06
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Journal Article: Barriers to Innovation and Subsidy Effectiveness (2005)
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