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CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology KTH/CESIS Working Paper Series in Economics and Institutions of Innovation

No 6:
The Impact of Public Funding on Private R&D investment: New Evidence from a Firm Level Innovation Study

Hans Lf () and Almas Heshmati

Abstract: This paper investigates the effectiveness of a public innovation policy aimed at stimulating private R&D investment. The research will examine whether public funding increases the total spending on research or merely displaces funding from private sources. The empirical analysis is based on the Community Innovation Survey data merged with register data. It is an evaluation of whether firms receiving public funds have on average a higher R&D intensity compared to those not receiving any such support. In order to account for possible selectivity bias, and to improve comparability of firms, two different versions of a semi-parametric matching approach are employed. The two matching estimators result in somewhat different results. The Nearest Neighbour estimator is preferred to the Kernel estimator. The results support the hypothesis suggesting that there are additive effects of public R&D financing on private research expenditures only for small firms

Keywords: R&D investment; crowding out; public funding; matching; subsidies; (follow links to similar papers)

JEL-Codes: C24; L10; O30; O31; O38; O40; (follow links to similar papers)

26 pages, November 23, 2004, Revised March 1, 2005

The paper has been revised and the title has been changed

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