Globalisation , Productivity and Technology Research Paper 2005 / 38 The Effect of R & D Subsidies on Private R

This paper investigates the relationship between government support for R&D and R&D expenditure financed privately by firms using a comprehensive plant level data set for the manufacturing sector in the Republic of Ireland. Our empirical strategy combines a nonparametric matching procedure with a difference-in-differences estimator in order to deal with the potential selection problem inherent in the analysis. We find that for domestic plants small and medium sized grants serve to increase private R&D spending, particularly for the former where it can induce R&D spending even beyond the subsidy, while too large a grant may crowd out private financing of R&D. In contrast, evidence for foreign establishments suggests that grant provision causes neither additionality nor crowding out effects of private R&D financing, regardless of the size of the subsidy. JEL classification: L2, H2, F2, O3