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Estimating the local average treatment effect of R&D subsidies in a pan-European program

Paul Hünermund () and Dirk Czarnitzki

No 16-039, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: We investigate the effect of Europe's largest multilateral subsidy program for R&D-performing, small and medium-sized enterprises on firm growth. The program was organized under a specific budget allocation rule, referred to as Virtual Common Pot (VCP), which is designed to avoid cross-subsidization between participating countries. This rule creates exogenous variation in treatment status and allows us to identify the local average treatment effect of public R&D grants. In addition, we compare the program's effect under the VCP rule with the standard situation of a Real Common Pot (RCP), where program authorities allocate a single budget according to uniform project evaluation criteria. Our estimates suggest no average effect of grants on firm growth but treatment effects are heterogeneous and increase with project quality. A Real Common Pot would have reduced the cost of policy-induced job creation by 27%. We discuss the implications of our findings for the coordination of national policy programs within the European Research Area.

Keywords: Joint Programming Iniatives; R&D Policy; Virtual Common Pot; Instrumental Variable Estimation; European Research Area (search for similar items in EconPapers)
JEL-codes: O38 H25 C31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-sbm and nep-tid
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:16039

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