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

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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).

## Keywords

Dynamic discrete models Persistence R&D Subsidies## JEL Classification

H2 O2 C1 D2## Notes

### Acknowledgments

I thank the editor Lawrence J. White and one anonymous referee for providing many helpful comments that greatly improved the article. I am grateful to Pierre Mohnen and José García-Quevedo for their excellent supervision. I am also grateful to Elena Huergo, Georg Licht, Alejandro Esteller-Moré, Martí Parellada for their helpful comments. Financial support from the Spanish Ministry of Science and Education (ECO2010-16934) and from the Generalitat of Catalonia (2009SGR102) is gratefully acknowledged.

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