Scandinavian Working Papers in Economics

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

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

Hans Lööf () and Almas Heshmati
Additional contact information
Hans Lööf: CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology, Postal: CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology, SE-100 44 Stockholm, Sweden
Almas Heshmati: heshmati@snu.ac.kr, Postal: Techno-Economics and Policy Program, College of Engineering, Seoul National University, San 56-1 Shilim-dong, Kwanak-gu, Seoul 151-742, Korea,

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

JEL-codes: C24; L10; O30; O31; O38; O40

26 pages, First version: November 23, 2004. Revised: March 1, 2005.

Note: The paper has been revised and the title has been changed

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