Small Business Economics

, Volume 45, Issue 3, pp 465–485 | Cite as

R&D policies for young SMEs: input and output effects



This paper evaluates the current focus of EU policy makers on small and medium-sized, young independent firms in high-tech sectors. Therefore, the effect of subsidies on both R&D input and R&D output is compared between independent high-tech young firms (NTBFs), independent low-tech young firms (LTBFs) and their non-independent counterparts. A treatment effects analysis reveals that full crowding-out with regard to public funding is rejected for all firm types. However, the treatment effect is highest for independent high-tech firms. The indirect effect of subsidies on R&D output is evaluated within a patent production framework. These results show that independent high-tech firms have no lower output effects than other firms and thus suggest that the current policy focus on certain firm types is not ineffective.


R&D Subsidies NTBFs Policy evaluation Treatment effects Patents 

JEL Classifications

H25 M13 O31 O38 L26 



The authors like to thank the participants of the Druid Conference, Barcelona (2013); the fourth IZA Workshop on Entrepreneurship Research, San Francisco (2013); and the fourth European Conference on Corporate R&D and Innovation (Concordi-2013), Seville, for their valuable comments.


  1. Acs, Z., & Audretsch, D. (1989). Small-firm entry in US manufacturing. Economica, 56, 255–265.CrossRefGoogle Scholar
  2. Alecke, B., Mitze, T., Reinkowski, J., & Untiedt, G. (2012). Does firm size make a difference? Analysing the effectiveness of R&D subsidies in East Germany. German Economic Review, 13, 174–195.CrossRefGoogle Scholar
  3. Almus, M., & Nerlinger, E. (1999). Growth of new technology based firms: Which factors matter? Small Business Economics, 13, 141–154.CrossRefGoogle Scholar
  4. Angrist, J. (1998). Estimating the labor market impact of voluntary military service using social security data. Econometrica, 66, 249–288.CrossRefGoogle Scholar
  5. Arrow, K. (1962). Economic welfare and the allocation of resources for invention. In R. Nelson (Ed.), The rate and direction of inventive activity: Economic and social factors (pp. 609–625). Princeton, NJ: Princeton University Press.Google Scholar
  6. Audretsch, D. (1995). Innovation, growth and survival. International Journal of Industrial Organization, 13, 441–457.CrossRefGoogle Scholar
  7. Bartelsman, E., Haltiwanger, J., & Scarpetta, S. (2004). Microeconomic evidence of creative destruction in industrial and developing countries. Discussion Papers 04-114/3, Tinbergen Institute.Google Scholar
  8. Berger, A., & Udell, G. (2002). Small business credit availability and relationship lending: The importance of bank organisational structure. The Economic Journal, 112, 32–53.CrossRefGoogle Scholar
  9. Blundell, R., Griffith, R., & Van Reenen, J. (1995). Dynamic count data models of technological innovation. The Economic Journal, 105, 333–344.CrossRefGoogle Scholar
  10. Blundell, R., Griffith, R., & Windmeijer, F. (2002). Individual effects and dynamics in count data models. Journal of Econometrics, 108, 113–131.CrossRefGoogle Scholar
  11. BMBF (Federal Ministry of Education and Research). (2010). Ideas. Innovation. Prosperity. High-tech strategy 2020 for Germany.Google Scholar
  12. Branstetter, L., & Sakakibara, M. (2002). When do research consortia work well and why? Evidence from Japanese panel data. American Economic Review, 92, 143–159.CrossRefGoogle Scholar
  13. Calvo, J. (2006). Testing Gibrat’s law for small, young and innovating firms. Small Business Economics, 26, 117–123.CrossRefGoogle Scholar
  14. Carpenter, R., & Petersen, B. (2002). Capital market imperfections, high-tech investment, and new equity financing. The Economic Journal, 112(477), F54–F72.CrossRefGoogle Scholar
  15. Cassar, G. (2004). The financing of business start-ups. Journal of Business Venturing, 19(2), 261–283.CrossRefGoogle Scholar
  16. Cerulli, G. (2010). Modelling and measuring the effect of public subsidies on business R&D: A critical review of the econometric literature. The Economic Record, 86, 421–449.CrossRefGoogle Scholar
  17. Cochran, W., & Rubin, D. (1973). Controlling bias in observational studies: A review. Sankhya, Ser A 35, 417–446.Google Scholar
  18. Collins, N., & Preston, L. E. (1969). Price-cost margins and industry structure. Review of Economics and Statistics, 51, 271–286.Google Scholar
  19. Colombo, M. G., Giannangeli, S., & Grilli, L. (2012). Public subsides and the employment growth of high-tech start-ups: Assessing the impact of selective and automatic support schemes. Industrial and Corporate Change, 22, 1273–1314.CrossRefGoogle Scholar
  20. Colombo, M. G., & Grilli, L. (2010). On growth drivers of high-tech start-ups: Exploring the role of founders’ human capital and venture capital. Journal of Business Venturing, 25(6), 610–626.CrossRefGoogle Scholar
  21. Colombo, M. G., Grilli, L., & Murtinu, S. (2011). R&D subsidies and the performance of high-tech start-ups. Economics Letters, 112, 97–99.CrossRefGoogle Scholar
  22. Cozza, C., Malerba, F., Mancusi, M. L., Perani, G., & Vezzulli, A. (2012). Innovation, profitability and growth in medium and high-tech manufacturing industries: Evidence from Italy. Applied Economics, 44, 1963–1976.CrossRefGoogle Scholar
  23. Czarnitzki, D., & Delanote, J. (2013). Young innovative companies: The new high-growth firms? Industrial and Corporate Change, 22(5), 1315–1340.CrossRefGoogle Scholar
  24. Czarnitzki, D., Ebersberger, B., & Fier, A. (2007). The relationship between R&D collaboration, subsidies and R&D performance: Empirical evidence from Finalnd and Germany. Journal of Applied Econometrics, 22, 1347–1366.CrossRefGoogle Scholar
  25. Czarnitzki, D., & Hottenrott, H. (2011). R&D investment and financing constraints of small and medium-sized firms. Small Business Economics, 36, 65–83.CrossRefGoogle Scholar
  26. Czarnitzki, D., & Hussinger, K. (2004). The link between R&D subsidies, R&D spending and technological performance. ZEW working paper, pp. 4–56.Google Scholar
  27. Czarnitzki, D., & Licht, (2006). Additionality of public R&D grants in a transition economy: The case of eastern Germany. The Economics of Transition, 14, 101–131.CrossRefGoogle Scholar
  28. Czarnitzki, D., & Lopes Bento, C. (2014). Innovation subsidies: Does the funding source matter for innovation intensity and performance? Empirical evidence from Germany. Industry and Innovation, 21, 380–409.CrossRefGoogle Scholar
  29. David, P., Hall, B., & Toole, A. (2000). Is public R&D a complement or substitute for private R&D? A review of the econometric evidence. Research Policy, 29, 497–529.CrossRefGoogle Scholar
  30. Dehejia, R., & Wahba, S. (1999). Causal effects in nonexperimental studies: Reevaluating the evaluation of training programs. Journal of the American Statistical Association, 94, 1053–1062.CrossRefGoogle Scholar
  31. Dixit, A. K., & Pindyck, R. S. (1994). Investment under uncertainty. Princeton, NJ: Princeton University Press.Google Scholar
  32. Dunne, T., Roberts, M., & Samuelson, L., (1988). Patterns of firm entry and exit in US manufacturing industries, The RAND Journal of Economics, 19, 495–515. Google Scholar
  33. EC-DG Research and Innovation. (2011). State of the innovation union.Google Scholar
  34. European Commission (2008). Commission Regulation (EC) No 800/2008 of 6 August 2008 declaring certain categories of aid compatible with the common market in application of Articles 87 and 88 of the Treaty (General block exemption Regulation) (Text with EEA relevance), Official Journal L.214, 9.8.2008 pp. 3–47.Google Scholar
  35. Evans, D., & Jovanovic, B. (1989). An estimated model of entrepreneurial choice under liquidity constraints. Journal of Political Economy, 97, 808–827.CrossRefGoogle Scholar
  36. Goodacre, A., & Tonks, I. (1995). Finance and technological change. In P. Stoneman (Ed.), Handbook of the economics of innovation and technological change (pp. 298–341). Oxford: Blackwells.Google Scholar
  37. Goolsbee, A. (1998). Does R&D Policy primarily benefit scientists and engineers? American Economic Review, 88, 298–302.Google Scholar
  38. Griliches, Z. (1990). Patent statistics as economic indicators: A survey. Journal of Economic Literature, 28, 1661–1707.Google Scholar
  39. Griliches, Z. (1998). Patent statistics as economic indicators: A survey. In R&D and productivity: The econometric evidence (pp. 287–343). University of Chicago Press.Google Scholar
  40. Griliches, Z., & Mairesse, J. (1984). Productivity and R&D at the firm level. In Z. Griliches (Ed.), R&D, patents and productivity. Chicago, IL: University of Chicago Press.CrossRefGoogle Scholar
  41. Grilli, L., & Murtinu, S. (2012). Do public subsidies affect the performance of new technology-based firms? The importance of evaluation schemes and agency goals. Prometheus: Critical Studies in Innovation, 30, 97–111.CrossRefGoogle Scholar
  42. Hall, B. (1990). The impact of corporate restructuring on industrial research and development. Brooking Papers on Economic Activity, 1, 85–136.CrossRefGoogle Scholar
  43. Hall, B., Griliches, Z., & Hausman, J. (1986). Patents and R&D: Is there a lag? International Economic Review, 27, 1029–1054.CrossRefGoogle Scholar
  44. Hall, B., & Lerner, J. (2010). Chapter 14: The financing of R&D and innovation. In B. Hall & N. Rosenberg (Eds.), Economics of innovation. Oxford: Elsevier.Google Scholar
  45. Heckman, J., Ichimura, H., Smith, J., & Todd, P. (1998). Characterizing selection bias using experimental data. Econometrics, 66, 1017–1098.CrossRefGoogle Scholar
  46. Himmelberg, C., & Petersen, B. (1994). R&D and internal finance: A panel study of small firms in high-tech sectors. Review of Economics and Statistics, 76, 38–51.CrossRefGoogle Scholar
  47. Holtz-Eakin, D., Joulfaian, D., & Rosen, (1994). Sticking it out: Entrepreneurial survival and liquidity constraints. Journal of Political Economy, 102, 53–75.CrossRefGoogle Scholar
  48. Holtz-Eakin, D., Joulfaian, D., & Rosen, H. (1994b). Entrepreneurial decisions and liquidity constraints. Rand Journal of Economics, 25, 334–347.CrossRefGoogle Scholar
  49. Hoshi, T., Kashyap, A., & Scharfstein, D. (1991). Corporate structure, liquidity, and investment: Evidence from Japanese industrial groups. The Quarterly Journal of Economics, 106, 33–60.CrossRefGoogle Scholar
  50. Howells, J. (2008). New directions in R&D: Current and prospective challenges. R&D Management, 38, 241–252.CrossRefGoogle Scholar
  51. Jaffe, A. (1986). Technological opportunity and spillovers of R&D: Evidence from firm’s patent, profits, and market value. American Economic Review, 76, 984–1001.Google Scholar
  52. Lechner, M. (2000). An evaluation of public sector sponsored continuous vocational training in East Germany. Journal of Human Resources, 35, 347–375.CrossRefGoogle Scholar
  53. Lechner, M. (2001). Identification and estimation of causal effects of multiple treatments under the conditional independence assumption. In M. Lechner & F. Pfeiffer (Eds.), Econometric evaluation of labour market policies (pp. 43–58). Wurzburg: Physica.CrossRefGoogle Scholar
  54. Lerner, J. (1999). The government as venture capitalist: The long-run impact of the SBIR program. Journal of Business, 72(3), 285–318.CrossRefGoogle Scholar
  55. Lerner, J. (2002). When bureaucrats meet entrepreneurs: The design of effective ‘public venture capital’ programmes. The Economic Journal, 112(477), F73–F84.CrossRefGoogle Scholar
  56. Licht, G., & Nerlinger, E. (1998). New technology-based firms in Germany: A survey of the recent evidence. Research Policy, 26, 1005–1022.CrossRefGoogle Scholar
  57. Little, A. D. (1977). New technology-based firms in the United Kingdom and the Federal Republic of Germany. A report prepared for the Anglo-German foundation for the study of industrial society, London.Google Scholar
  58. Moncada, P., Ciupagea, C., Smith, K., Tuebke, A., & Tubbs, M. (2010). Does Europe perform too little corporate R&D? A comparison of EU and non-EU corporate R&D performance. Research Policy, 39, 523–536.CrossRefGoogle Scholar
  59. Nelson, R. (1959). The simple economics of basic scientific research. Journal of Political Economy, 49, 297–306.CrossRefGoogle Scholar
  60. OECD (1994). The measurement of scientific and technological activities—using patent data as science and technology indicators: Patent manual 1994, Paris.Google Scholar
  61. Pakes, A., & Griliches, Z. (1984). Estimating distributed lags in short panels with an application to the specification of depreciation patterns and capital stock constructs. NBER working paper series 0933, NBER, Cambridge.Google Scholar
  62. Pindyck, R. (1991). Irreversibility, uncertainty, and investment. Journal of Economic Literature, 29, 1110–1148.Google Scholar
  63. Ravenscraft, D.J. (1983). Structure-profit relationships at the line of business and industry level. Review of Economics and Statistics, 65, 22–31.Google Scholar
  64. Rosenbaum, P., & Rubin, D. (1983). The central role of the propensity score in observational studies for causal effects. Biometrika, 70, 41–55.CrossRefGoogle Scholar
  65. Rubin, D. (1977). Assignment to treatment group on the basis of covariate. Journal of Educational Statistics, 2, 1–26.Google Scholar
  66. Schaller, H. (1993). Asymmetric information, liquidity constraints, and Canadian Investment. The Canadian Journal of Economics, 26, 552–574.CrossRefGoogle Scholar
  67. Schneider, C., & Veugelers, R. (2010). On young highly innovative companies: Why they matter and how (not) to policy support them. industrial and Corporate Change, 19(4), 1–39.CrossRefGoogle Scholar
  68. Schumpeter, J. (1942). Capitalism, socialism and democracy. New York: Harper and Row.Google Scholar
  69. Stiglitz, J., & Weiss, A. (1981). Credit rationing in markets with imperfect information. American Economic Review, 71, 393–410.Google Scholar
  70. Storey, D., & Tether, B. (1998). New technology-based firms in the European union: An introduction. Research Policy, 26(9), 933–946.CrossRefGoogle Scholar
  71. Veugelers, R. (2008). The role of SMEs in innovation in the EU: A case for policy intervention? Review of Business and Economics, 53(3), 239–262.Google Scholar
  72. Wallsten, S. (2000). The effects of government-industry R&D programs on private R&D: The case of the Small Business Innovation Research Program. RAND Journal of Economics, 31, 82–100.CrossRefGoogle Scholar
  73. Westhead, P., & Cowling, M. (1995). Employment change in independent owner-managed high-technology firms in Great Britain. Small Business Economics, 7, 111–140.CrossRefGoogle Scholar
  74. Westhead, P., & Storey, D. (1997). Financial constraints on the growth of high technology small firms in the United Kingdom. Applied Financial Economics, 7, 197–201.CrossRefGoogle Scholar
  75. Wooldridge, J. (2002). Chapter 19: Count data and related models. In Econometric analysis of cross section and panel data. MIT press.Google Scholar
  76. Zúñiga Vicente, J., Alonso-Borrego, C., Forcadell, F., & Galan, J. (2014). Assessing the effect of public subsidies on firm R&D investment: A survey. Journal of Economic Surveys, 28, 36–67.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media New York 2015

Authors and Affiliations

  1. 1.Department of Managerial Economics, Strategy and Innovation, Faculty of Business and EconomicsKU LeuvenLeuvenBelgium
  2. 2.Center for R&D Monitoring (ECOOM)KU LeuvenLeuvenBelgium
  3. 3.ZEWMannheimGermany

Personalised recommendations