Discussion Papers no. 729

Estimating the additionality of R&D subsidies using proposal evaluation data to control for firms’ R&D intentions

Empirical examination of whether R&D subsidies to private firms crowd out private investments has been hampered by problems related to selection. A particular worry is that research intentions and the quality of current research ideas may be correlated with the likelihood of applying for and receiving subsidies.

Empirical examination of whether R&D subsidies to private firms crowd out private investments has been hampered by problems related to selection. A particular worry is that research intentions and the quality of current research ideas may be correlated with the likelihood of applying for and receiving subsidies. Proposal evaluation data has been put forward as a potential remedy. Using such data from Norway, we do not find strong evidence suggesting that this type of selection creates a severe bias. Proposal evaluation grades strongly predict R&D investments and reduce selection bias in cross-sectional regressions, but there is limited variation in grades within firms over time. This suggests that unobserved project quality is largely absorbed by firm fixed effects. Our best estimate of the short-run additionality of R&D subsidies is 1.15, i.e., a one-unit increase in subsidy increases total R&D expenditure in the recipient firm by somewhat more than a unit. We demonstrate, however, that there is severe measurement error in the subsidy variable. Additionality is therefore likely to be underestimated, and we conclude that measurement errors may be a more important source of bias than selection when panel data are available.

About the publication

Title

Estimating the additionality of R&D subsidies using proposal evaluation data to control for firms’ R&D intentions

Authors

Morten Henningsen, Torbjørn Hægeland, Jarle Møen

Series and number

Discussion Papers no. 729

Publisher

Statistics Norway

Topic

Discussion Papers

ISSN

1892-753X

Number of pages

36

Language

English

About Discussion Papers

Discussion papers comprise research papers intended for international journals and books. A preprint of a Discussion Paper may be longer and more elaborate than a standard journal article as it may include intermediate calculations, background material etc.

Contact