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Returns to public R&D grants and subsidies

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Abstract

We address the question of whether the returns to R&D differ between R&D projects funded by public grants and R&D in general. To answer this question, we use a flexible production function that distinguishes between different types of R&D by source of finance. Our approach requires no adjustment of the sample or data in order to include firms that never invest in R&D, in contrast to the standard Cobb-Douglas production specification. We investigate the productivity and profitability effects of R&D using a comprehensive panel of Norwegian firms over the period 2001-2009. The results suggest that the returns to R&D projects subsidized by the Research Council of Norway do not differ significantly from R&D spending in general. Our estimate of the average rate of return to R&D is about 10 percent. This estimate is robust with respect to whether firms with zero R&D are included in the estimation sample or not. In contrast, using a standard Cobb-Douglas specification and restricting the sample of firms to those with positive R&D, leads to implausibly high estimates of the rate of returns.

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  • Ådne Cappelen & Arvid Raknerud & Marina Rybalka, 2013. "Returns to public R&D grants and subsidies," Discussion Papers 740, Statistics Norway, Research Department.
    • Handle: RePEc:ssb:dispap:740
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    Cited by:

    1. Møen, Jarle, 2018. "Corporate returns to subsidized R&D projects: Direct grants vs tax credit financing," Discussion Papers 2018/9, Norwegian School of Economics, Department of Business and Management Science.

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    More about this item

    Keywords

    Returns to R&D; Public grants; Public subsidies; Productivity;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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