IDEAS home Printed from https://ideas.repec.org/a/bla/rdevec/v28y2024i1p71-96.html
   My bibliography  Save this article

A possible mechanism for partial crowding‐out of R&D subsidies in developing countries

Author

Listed:
  • María Engracia Rochina Barrachina
  • Jorge Antonio Rodríguez Moreno

Abstract

We analyze the effectiveness of R&D subsidies on firms' R&D efforts in a developing country like Ecuador. We use the National Survey of Innovation Activities. Methodologically, we employ a structural framework that considers simultaneity and selection issues. Our results indicate that subsidies have an extensive margin effect, as they encourage firms to carry out R&D activities, and an intensive margin effect, as they increase firms' total innovation effort. However, this is compatible with partial crowding‐out of private efforts by public funds. One possible mechanism to explain this result is that, in developing countries with less developed capital markets, firms with financial constraints may divert part of the subsidy to invest in fixed capital. We find some support for this hypothesis, as the most financially constrained firms both explain the crowding‐out effect and increase their fixed capital investment when receiving a subsidy. For other firms, we observe crowding‐in, and their fixed capital investment remains insensitive to the subsidy.

Suggested Citation

  • María Engracia Rochina Barrachina & Jorge Antonio Rodríguez Moreno, 2024. "A possible mechanism for partial crowding‐out of R&D subsidies in developing countries," Review of Development Economics, Wiley Blackwell, vol. 28(1), pages 71-96, February.
    • Handle: RePEc:bla:rdevec:v:28:y:2024:i:1:p:71-96
    DOI: 10.1111/rode.13038
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/rode.13038
    Download Restriction: no
    File URL: https://libkey.io/10.1111/rode.13038?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Joost Heijs & Alex J. Guerrero & Elena Huergo, 2022. "Understanding the Heterogeneous Additionality of R&D Subsidy Programs of Different Government Levels," Industry and Innovation, Taylor & Francis Journals, vol. 29(4), pages 533-563, April.
    2. Xulia González & Jordi Jaumandreu & Consuelo Pazo, 2005. "Barriers to Innovation and Subsidy Effectiveness," RAND Journal of Economics, The RAND Corporation, vol. 36(4), pages 930-949, Winter.
    3. Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626, National Bureau of Economic Research, Inc.
    4. Rita Almeida & Ana Margarida Fernandes, 2008. "Openness and Technological Innovations in Developing Countries: Evidence from Firm-Level Surveys," Journal of Development Studies, Taylor & Francis Journals, vol. 44(5), pages 701-727.
    5. Saul Lach, 2002. "Do R&D Subsidies Stimulate or Displace Private R&D? Evidence from Israel," Journal of Industrial Economics, Wiley Blackwell, vol. 50(4), pages 369-390, December.
    6. Nan Wang & Mingdi Xiao & Ivan Savin, 2021. "Complementarity effect in the innovation strategy: internal R&D and acquisition of capital with embodied technology," The Journal of Technology Transfer, Springer, vol. 46(2), pages 459-482, April.
    7. Damrich, Sebastian & Kealey, Terence & Ricketts, Martin, 2022. "Crowding in and crowding out within a contribution good model of research," Research Policy, Elsevier, vol. 51(1).
    8. Era Dabla-Norris & Erasmus K. Kersting & Geneviève Verdier, 2012. "Firm Productivity, Innovation, and Financial Development," Southern Economic Journal, John Wiley & Sons, vol. 79(2), pages 422-449, October.
    9. Shimaa Elkomy & Hilary Ingham & Robert Read, 2021. "The Impact of Foreign Technology and Embodied R&D on Productivity in Internationally Oriented and High-Technology Industries in Egypt, 2006–2009," Journal of Industry, Competition and Trade, Springer, vol. 21(2), pages 171-192, June.
    10. Marino, Marianna & Lhuillery, Stephane & Parrotta, Pierpaolo & Sala, Davide, 2016. "Additionality or crowding-out? An overall evaluation of public R&D subsidy on private R&D expenditure," Research Policy, Elsevier, vol. 45(9), pages 1715-1730.
    11. Takalo, Tuomas & Tanayama, Tanja & Toivanen, Otto, 2013. "Market failures and the additionality effects of public support to private R&D: Theory and empirical implications," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 634-642.
    12. Isabel Busom & Beatriz Corchuelo & Ester Martínez-Ros, 2014. "Tax incentives… or subsidies for business R&D?," Small Business Economics, Springer, vol. 43(3), pages 571-596, October.
    13. repec:zbw:bofrdp:2013_002 is not listed on IDEAS
    14. Era Dabla-Norris & Erasmus K. Kersting & Geneviève Verdier, 2012. "Firm Productivity, Innovation, and Financial Development," Southern Economic Journal, John Wiley & Sons, vol. 79(2), pages 422-449, October.
    15. Goedhuys, Micheline & Veugelers, Reinhilde, 2012. "Innovation strategies, process and product innovations and growth: Firm-level evidence from Brazil," Structural Change and Economic Dynamics, Elsevier, vol. 23(4), pages 516-529.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Thomas H. W. Ziesemer, 2021. "The Effects of R&D Subsidies and Publicly Performed R&D on Business R&D: A Survey," Hacienda Pública Española / Review of Public Economics, IEF, vol. 236(1), pages 171-205, March.
    2. Cristiano Antonelli, 2020. "Knowledge exhaustibility public support to business R&D and the additionality constraint," The Journal of Technology Transfer, Springer, vol. 45(3), pages 649-663, June.
    3. Bronzini, Raffaello & Piselli, Paolo, 2016. "The impact of R&D subsidies on firm innovation," Research Policy, Elsevier, vol. 45(2), pages 442-457.
    4. Huergo, Elena & Trenado, Mayte & Ubierna, Andrés, 2016. "The impact of public support on firm propensity to engage in R&D: Spanish experience," Technological Forecasting and Social Change, Elsevier, vol. 113(PB), pages 206-219.
    5. Widmann, Rainer, 2024. "The behavioral additionality of government research grants," International Journal of Industrial Organization, Elsevier, vol. 93(C).
    6. Helena Lenihan & Kevin Mulligan & Justin Doran & Christian Rammer & Olubunmi Ipinnaiye, 2024. "R&D grants and R&D tax credits to foreign-owned subsidiaries: Does supporting multinational enterprises’ R&D pay off in terms of firm performance improvements for the host economy?," The Journal of Technology Transfer, Springer, vol. 49(2), pages 740-781, April.
    7. Ali-Yrkkö, Jyrki, 2004. "Impact of Public R&D Financing on Private R&D - Does Financial Constraint Matter?," Discussion Papers 943, The Research Institute of the Finnish Economy.
    8. Alessandra Catozzella & Marco Vivarelli, 2016. "The possible adverse impact of innovation subsidies: some evidence from Italy," International Entrepreneurship and Management Journal, Springer, vol. 12(2), pages 351-368, June.
    9. Dimos, Christos & Pugh, Geoff & Hisarciklilar, Mehtap & Talam, Ema & Jackson, Ian, 2022. "The relative effectiveness of R&D tax credits and R&D subsidies: A comparative meta-regression analysis," Technovation, Elsevier, vol. 115(C).
    10. González, Xulia & Pazó, Consuelo, 2008. "Do public subsidies stimulate private R&D spending?," Research Policy, Elsevier, vol. 37(3), pages 371-389, April.
    11. Dirk Czarnitzki & Cindy Lopes-Bento, 2014. "Innovation Subsidies: Does the Funding Source Matter for Innovation Intensity and Performance? Empirical Evidence from Germany," Industry and Innovation, Taylor & Francis Journals, vol. 21(5), pages 380-409, July.
    12. Dirk Czarnitzki & Julie Delanote, 2017. "Incorporating innovation subsidies in the CDM framework: empirical evidence from Belgium," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 26(1-2), pages 78-92, February.
    13. Anders Gustafsson & Andreas Stephan & Alice Hallman & Nils Karlsson, 2016. "The “sugar rush” from innovation subsidies: a robust political economy perspective," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 43(4), pages 729-756, November.
    14. Ugur, Mehmet & Trushin, Eshref, 2018. "Asymmetric information and heterogeneous effects of R&D subsidies: evidence on R&D investment and employment of R&D personel," Greenwich Papers in Political Economy 21943, University of Greenwich, Greenwich Political Economy Research Centre.
    15. Paul Hünermund & Dirk Czarnitzki, 2016. "Estimating the local average treatment effect of R&D subsidies in a pan-European program," Working Papers of Department of Management, Strategy and Innovation, Leuven 541177, KU Leuven, Faculty of Economics and Business (FEB), Department of Management, Strategy and Innovation, Leuven.
    16. Czarnitzki, Dirk & Lopes-Bento, Cindy, 2013. "Value for money? New microeconometric evidence on public R&D grants in Flanders," Research Policy, Elsevier, vol. 42(1), pages 76-89.
    17. Messaoud Zouikri & Mounir Amdaoud, 2018. "Compétences externes et innovation: le cas des firmes de l'industrie manufacturière algérienne," EconomiX Working Papers 2018-37, University of Paris Nanterre, EconomiX.
    18. Hud, Martin & Hussinger, Katrin, 2015. "The impact of R&D subsidies during the crisis," Research Policy, Elsevier, vol. 44(10), pages 1844-1855.
    19. Francesco Aiello & Giuseppe Albanese & Paolo Piselli, 2017. "Public R&D Support In Italy. Evidence From A New Firm-Level Patent Data Set," Working Papers 201702, Università della Calabria, Dipartimento di Economia, Statistica e Finanza "Giovanni Anania" - DESF.
    20. Ugur, Mehmet & Trushin, Eshref & Solomon, Edna, 2015. "UK and EU subsidies and private R&D investment: Is there input additionality?," MPRA Paper 68009, University Library of Munich, Germany, revised 16 Nov 2015.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:rdevec:v:28:y:2024:i:1:p:71-96. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=1363-6669 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.