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Barriers to innovation and subsidy e¤ectiveness

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  • Xulia González
  • Jordi Jaumandreu
  • Consuelo Pazó

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.

Suggested Citation

  • Xulia González & Jordi Jaumandreu & Consuelo Pazó, 2001. "Barriers to innovation and subsidy e¤ectiveness," Working Papers 0112, Universidade de Vigo, Departamento de Economía Aplicada.
    • Handle: RePEc:vig:wpaper:0112
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    References listed on IDEAS

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    1. Cohen, Wesley M. & Levin, Richard C., 1989. "Empirical studies of innovation and market structure," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 18, pages 1059-1107, Elsevier.
    2. Isabel Busom, 2000. "An Empirical Evaluation of The Effects of R&D Subsidies," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 9(2), pages 111-148.
    3. David, Paul A. & Hall, Bronwyn H. & Toole, Andrew A., 2000. "Is public R&D a complement or substitute for private R&D? A review of the econometric evidence," Research Policy, Elsevier, vol. 29(4-5), pages 497-529, April.
    4. Leung, Siu Fai & Yu, Shihti, 1996. "On the choice between sample selection and two-part models," Journal of Econometrics, Elsevier, vol. 72(1-2), pages 197-229.
    5. Klette, Tor Jakob & Moen, Jarle & Griliches, Zvi, 2000. "Do subsidies to commercial R&D reduce market failures? Microeconometric evaluation studies1," Research Policy, Elsevier, vol. 29(4-5), pages 471-495, April.
    6. Xulia González & Jordi Jaumandreu, "undated". "Threshold effects in product R&D decisions: theoretical framework and empirical analysis," Studies on the Spanish Economy 45, FEDEA.
    7. Nelson, Forrest D., 1977. "Censored regression models with unobserved, stochastic censoring thresholds," Journal of Econometrics, Elsevier, vol. 6(3), pages 309-327, November.
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    More about this item

    Keywords

    R&D; innovation; subsidies; thresholds; Tobit model;
    All these keywords.

    JEL classification:

    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models

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