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Review of Industrial Organization
Erschienen in: Review of Industrial Organization 3/2013

01.11.2013

Persistence in R&D Performance and its Implications for the Granting of Subsidies

verfasst von: Pere Arqué-Castells

Erschienen in: Review of Industrial Organization | Ausgabe 3/2013

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Abstract

We study whether R&D subsidies can be used to encourage sustained R&D performance. To this end we measure the importance of true state dependence (TSD) in R&D performance and of subsidies’ inducement effects. Estimates that are based on a panel of Spanish manufacturing firms that are observed during the period 1998–2009 reveal that both magnitudes are positive and significant. Simulations that are carried out with the estimated parameters show that subsidies can generate permanent inducement effects for 9 % of Spanish manufacturing firms. The subsidy shares that are needed to generate permanent inducement effects among small firms (firms with fewer than 200 employees) are larger than those that are needed to generate permanent inducement effects among large firms (firms with 200 or more employees).
Vorheriger Artikel A Comparison of National and International Innovation Cooperation in Five European Countries
Nächster Artikel Bundling, Competition and Quality Investment: A Welfare Analysis

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Fußnoten
1
See Peters (2009) and Raymond et al. (2010) for a detailed explanation of the causes that may induce persistence in innovation activities.
 
2
Firms might possess certain characteristics that make them more “prone” to carry out R&D activities. If these characteristics persist over time, they will inevitably induce persistence in R&D performance as well.
 
3
The ESEE (Survey on Firm Strategies) has been conducted since 1990 by the Fundación SEPI under the sponsorship of the Spanish Ministry of Industry.
 
4
Our definition of R&D is consistent with the definition given in the Frascati Manual.
 
5
The exact question is “Did you search external R&D funding without success?”.
 
6
According to the Technological Innovation Panel survey (PITEC), on average, 81 % of Spanish firms’ R&D expenditures are funded with own internal funds while 16.7 % are funded with public funds (both from Spanish and European administrations) and only 2.3 % of come from other sources. So almost all external funding comes from the public sector.
 
7
The technical director of the ESEE told us that their internal checks clearly suggest that the outcomes of the question “Did you search external R&D funding without success?” can be used to infer whether firms applied for subsidies without success.
 
8
To construct the lags of some variables we also use data from the 1997 wave. We do not use previous years because information on subsidy applicants, which is key to identifying subsidies’ inducement effects, is only available since 1998.
 
9
To obtain the cleaned dataset we have simply deleted data points for which relevant variables are missing. We have also deleted some observations with subsidies higher than R&D expenditures that are not consistent with our empirical modeling. Recall that we model subsidies as a share of to-be-incurred R&D costs that should cover no more than 100 % of firms’ R&D expenditures (European Commission 2006).
 
10
A derivation of Eq. (1) can be obtained from the dynamic model of export market participation in the presence of sunk costs that was developed by Roberts and Tybout (1997) and adapted to the R&D participation decision by Mañez et al. (2009).
 
11
Notice that the way that subsidies enter Eq. (1) is consistent with the first order conditions of a firm that maximizes profits with respect to R&D expenditures where a share of R&D expenditures can be subsidized (see González et al. (2005) and Takalo et al. (2013)).
 
12
See “Appendix 1” for a detailed explanation of the specific models used to estimate Eq. (1).
 
13
On the other hand, the linear models do not need to parameterize the unobserved heterogeneity and are unaffected by the initial conditions problem (Heckman 1981). Two comprehensive papers that study TSD (in a different context) by means of several linear and non linear models are Hyslop (1999) and Stewart (2007).
 
14
Mundlak means are within means of the explanatory variables that aim to control for any possible source of correlation between the explanatory variables and the individual firm effect, thereby acting as a kind of firm fixed effect (see “Appendix 1” for a detailed explanation).
 
15
Except for the expected subsidy coverage, firm-specific averages of the explanatory variables have been excluded from the final specification due to the lack of within variation. It is important to realize that random effects and pooled probit models involve different normalisations (Arulampalam 1999). The coefficients that are shown in Table 7 have not been rescaled, and estimates of the RE and Wooldridge models should not be compared with the pooled probit; but the AMEs that are shown at the bottom of Table 7 have been rescaled and are comparable.
 
16
There are two possible explanations for this result: First, we can interpret our average variable cost variable as a productivity measure and take the negative sign as evidence that only more productive firms self-select into R&D. Alternatively, by noticing that our average variable cost variable is equal to 1 minus the profit margin we can also interpret the negative sign as evidence that firms with smaller profit margins have more difficulty in doing R&D (because much of R&D is internally financed from profits).
 
17
Note that these shocks are substantial for most of the firms in the sample, as the observed expected subsidy coverage is below 1 % for more than 89 % of the observations.
 
18
It could also be restored to its pre-shock level, but setting it equal to zero is even more demanding.
 
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Metadaten
Titel
Persistence in R&D Performance and its Implications for the Granting of Subsidies
verfasst von
Pere Arqué-Castells
Publikationsdatum
01.11.2013
Verlag
Springer US
Erschienen in
Review of Industrial Organization / Ausgabe 3/2013
Print ISSN: 0889-938X
Elektronische ISSN: 1573-7160
DOI
https://doi.org/10.1007/s11151-013-9381-0

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