Small Business Economics

, Volume 45, Issue 4, pp 805–823 | Cite as

R&D subsidies and productivity in SMEs

Article

Abstract

This paper examines the effect of R&D subsidies on labour productivity. We use firm-level data on Finnish SMEs from 2000 to 2012 and apply a combined matching and difference-in-differences method to control for selection bias. We find no significant positive effect on labour productivity over the five-year period after a subsidy is granted. However, the results vary over time and indicate a 2–4 % negative effect on SMEs’ annual productivity growth one to 2 years after the subsidy year. Nevertheless, subsidies generate a positive employment effect and enhance firm survival. Additional scrutiny reveals that subsidies positively affect the human capital level of low-skill firms.

Keywords

Productivity Subsidies R&D SMEs Industrial policy Conditional difference-in-differences 

JEL Classifications

D24 O25 O38 C21 L26 

Supplementary material

11187_2015_9658_MOESM1_ESM.docx (570 kb)
Supplementary material 1 (DOCX 570 kb)

References

  1. Abadie, A., & Imbens, G. W. (2009). Matching on the estimated propensity score. NBER Working Paper,. doi:10.3386/w15301.Google Scholar
  2. Aerts, K., & Schmidt, T. (2008). Two for the price of one? Additionality effects of R&D subsidies: A comparison between Flanders and Germany. Research Policy, 37, 806–822. doi:10.1016/j.respol.2008.01.011.CrossRefGoogle Scholar
  3. Almus, M., & Czarnitzki, D. (2003). The effects of public R&D subsidies on firms’ innovation activities. Journal of Business & Economic Statistics, 21, 226–236. doi:10.1198/073500103288618918.MathSciNetCrossRefGoogle Scholar
  4. Andries, P., & Czarnitzki, D. (2014). Small firm innovation performance and employee involvement. Small Business Economics, 43, 21–38. doi:10.1007/s11187-014-9577-1.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. 609–626). Princeton: Princeton University Press.Google Scholar
  6. Bartel, A. P., & Lichtenberg, F. R. (1987). The comparative advantage of educated workers in implementing new technology. The Review of Economics and Statistics, 69, 1–11. doi:10.2307/1937894.CrossRefGoogle Scholar
  7. Becker, S. O., Egger, P. H., & Von Ehrlich, M. (2013). Absorptive capacity and the growth and investment effects of regional transfers: A regression discontinuity design with heterogeneous treatment effects. American Economic Journal: Economic Policy, 5(4), 29–77. doi:10.1257/pol.5.4.29.Google Scholar
  8. Bernini, C., & Pellegrini, G. (2011). How are growth and productivity in private firms affected by public subsidy? Evidence from a regional policy. Regional Science and Urban Economics, 41, 253–265. doi:10.1016/j.regsciurbeco.2011.01.005.CrossRefGoogle Scholar
  9. Bérubé, C., & Mohnen, P. (2009). Are firms that receive R&D subsidies more innovative? Canadian Journal of Economics, 42, 206–225. doi:10.1111/j.1540-5982.2008.01505.x.CrossRefGoogle Scholar
  10. Blundell, R., & Costa Dias, M. (2000). Evaluation methods for non-experimental data. Fiscal Studies, 21, 427–468. doi:10.1111/j.1475-5890.2000.tb00031.x.CrossRefGoogle Scholar
  11. Bronzini, R., & Iachini, E. (2014). Are incentives for R&D effective? Evidence from a regression discontinuity approach. American Economic Journal Economic Policy, 6(4), 100–134. doi:10.1257/pol.6.4.100.CrossRefGoogle Scholar
  12. Busom, I. (2000). An empirical evaluation of the effects of R&D subsidies. Economics of Innovation and New Technology, 9, 111–148. doi:10.1080/10438590000000006.CrossRefGoogle Scholar
  13. Cantner, U., & Kösters, S. (2012). Picking the winner? Empirical evidence on the targeting of R&D subsidies to start-ups. Small Business Economics, 39, 921–936. doi:10.1007/s11187-011-9340-9.CrossRefGoogle Scholar
  14. Cappelen, Å., Raknerud, A., & Rybalka, M. (2012). The effects of R&D tax credits on patenting and innovations. Research Policy, 41, 334–345. doi:10.1016/j.respol.2011.10.001.CrossRefGoogle Scholar
  15. Cerqua, A., & Pellegrini, Guido. (2014). Do subsidies to private capital boost firms’ growth? A multiple regression discontinuity design approach. Journal of Public Economics, 109, 114–126. doi:10.1016/j.jpubeco.2013.11.005.CrossRefGoogle Scholar
  16. Coad, A. (2013). Death is not a success: Reflections on business exit. International Small Business Journal,. doi:10.1177/0266242612475104.Google Scholar
  17. Cohen, W. M., & Levinthal, D. A. (2009). Innovation and learning: the two faces of R & D. The Economic Journal,. doi:10.2307/2233763.Google Scholar
  18. Crépon, B., Duguet, E., & Mairessec, J. (1998). Research, innovation and productivity: An econometric analysis at the firm level. Economics of Innovation and New Technology, 7(2), 115–158. doi:10.1080/10438599800000031.CrossRefGoogle Scholar
  19. Criscuolo, C., Martin, R., Overman, H., & Reenen, J. V. (2012). The causal effects of an industrial policy. National Bureau of Economic Research (NBER) Working Paper,. doi:10.3386/w17842.MATHGoogle Scholar
  20. Czarnitzki, D. (2006). Research and development in small and medium-sized enterprises: The role of financial constraints and public funding. Scottish Journal of Political Economy, 53, 335–357. doi:10.1111/j.1467-9485.2006.00383.x.CrossRefGoogle Scholar
  21. Czarnitzki, D., Ebersberger, B., & Fier, A. (2007). The relationship between R&D collaboration, subsidies and R&D performance: Empirical evidence from Finland and Germany. Journal of Applied Econometrics, 22, 1347–1366. doi:10.1002/jae.992.MathSciNetCrossRefGoogle Scholar
  22. Czarnitzki, D., & Lopes-Bento, C. (2013). Value for money? New microeconometric evidence on public R&D grants in Flanders. Research Policy, 42, 76–89. doi:10.1016/j.respol.2012.04.008.CrossRefGoogle Scholar
  23. David, P. A., Hall, B. H., & Toole, A. 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. doi:10.1016/S0048-7333(99)00087-6.CrossRefGoogle Scholar
  24. Ebersberger, B. (2011). Public funding for innovation and the exit of firms. Journal of Evolutionary Economics, 21(3), 519–543. doi:10.1007/s00191-010-0186-0.CrossRefGoogle Scholar
  25. Einiö, E. (2014). R&D subsidies and company performance: Evidence from geographic variation in government funding based on the ERDF population-density rule. The Review of Economics and Statistics, 96(4), 710–728. doi:10.1162/REST_a_00410.CrossRefGoogle Scholar
  26. Fisher, P., & Ciani, E. (2014). Dif-in-dif estimators of multiplicative treatment effects (No. 2014-14). Institute for Social and Economic Research.Google Scholar
  27. Gelabert, L., Fosfuri, A., & Tribó, J. A. (2009). Does the effect of public support for R&D depend on the degree of appropriability? The Journal of Industrial Economics, 57, 736–767. doi:10.1111/j.1467-6451.2009.00396.x.CrossRefGoogle Scholar
  28. Girma, S., Görg, H., Strobl, E., & Walsh, F. (2008). Creating jobs through public subsidies: An empirical analysis. Labour Economics, 15, 1179–1199. doi:10.1016/j.labeco.2007.11.002.CrossRefGoogle Scholar
  29. González, X., & Pazó, C. (2008). Do public subsidies stimulate private R&D spending? Research Policy, 37, 371–389. doi:10.1016/j.respol.2007.10.009.CrossRefGoogle Scholar
  30. Görg, H., & Strobl, E. (2007). The effect of R&D subsidies on private R&D. Economica, 74, 215–234. doi:10.1111/j.1468-0335.2006.00547.x.CrossRefGoogle Scholar
  31. Griffith, R., Redding, S., & Van Reenen, J. (2003). R&D and absorptive capacity: Theory and empirical evidence. Scandinavian Journal of Economics, 105, 99–118. doi:10.1111/1467-9442.00007.CrossRefGoogle Scholar
  32. Griffith, R., Redding, S., & Van Reenen, J. (2004). Mapping the two faces of R&D: productivity growth in a panel of OECD industries. Review of Economics and Statistics, 86, 883–895. doi:10.1162/0034653043125194.CrossRefGoogle Scholar
  33. Griliches, Z. (1998). R&D and productivity: The econometric evidence. Chicago: University of Chicago Press.CrossRefGoogle Scholar
  34. Hainz, C., & Hakenes, H. (2012). ‘The politician and his banker—How to efficiently grant state aid. Journal of Public Economics, 96, 218–225. doi:10.1016/j.jpubeco.2011.09.005.CrossRefGoogle Scholar
  35. Hall, B. H. (2011). Innovation and productivity. NBER Working Paper,. doi:10.3386/w17178.Google Scholar
  36. Hall, B. H., Lotti, F., & Mairesse, J. (2008). Employment, innovation, and productivity: Evidence from Italian microdata. Industrial and Corporate Change, 17(4), 813–839. doi:10.1093/icc/dtn022.CrossRefGoogle Scholar
  37. Hall, B. H., Lotti, F., & Mairesse, J. (2009). Innovation and productivity in SMEs: Empirical evidence for Italy. Small Business Economics, 33(1), 13–33. doi:10.1007/s11187-009-9184-8.CrossRefGoogle Scholar
  38. Hall, B. H., Mairesse, J., & Mohnen, P. (2010). Measuring the Returns to R&D. In: Hall, B. H., & Rosenberg, N. (Eds.) Handbook of the Economics of Innovation, 2, 1033–1082. doi:10.1016/S0169-7218(10)02008-3.
  39. Heckman, J. J., Ichimura, H., & Todd, P. E. (1997). Matching as an econometric evaluation estimator: Evidence from evaluating a job training programme. Review of Economic Studies, 64, 605–654. doi:10.2307/2971733.MATHCrossRefGoogle Scholar
  40. Heckman, J. J., Ichimura, H., & Todd, P. E. (1998). Matching as an econometric evaluation estimator. Review of Economic Studies, 65, 261–294. doi:10.1111/1467-937X.00044.MATHMathSciNetCrossRefGoogle Scholar
  41. Heckman, J. J., & Smith, J. A. (1999). The pre-programme earnings Dip and the determinants of participation in a social programme. Implications for simple programme evaluation strategies. The Economic Journal, 109, 313–348. doi:10.1111/1468-0297.00451.CrossRefGoogle Scholar
  42. Honjo, Y., Kato, M., & Okamuro, H. (2014). R&D investment of start-up firms: Does founders’ human capital matter? Small Business Economics, 42, 207–220. doi:10.1007/s11187-013-9476-x.CrossRefGoogle Scholar
  43. Huergo, E., & Jaumandreu, J. (2004). How does probability of innovation change with firm age? Small Business Economics, 22(3–4), 193–207. doi:10.1023/B:SBEJ.0000022220.07366.b5.CrossRefGoogle Scholar
  44. Hussinger, K. (2008). R&D and subsidies at the firm level: An application of parametric and semiparametric two-step selection models. Journal of Applied Econometrics, 23, 729–747. doi:10.1002/jae.1016.MathSciNetCrossRefGoogle Scholar
  45. Hyytinen, A., Pajarinen, M., & Rouvinen, P. (2014). Does innovativeness reduce startup survival rates? Forthcoming in. Journal of Business Venturing,. doi:10.1016/j.jbusvent.2014.10.001.Google Scholar
  46. Hyytinen, A., & Toivanen, O. (2005). Do financial constraints hold back innovation and growth? Evidence on the role of public policy. Research Policy, 34, 1385–1403. doi:10.1016/j.respol.2005.06.004.CrossRefGoogle Scholar
  47. Imbens, G. W. (2000). The role of the propensity score in estimating dose-response functions. Biometrika, 87, 706–710. doi:10.1093/biomet/87.3.706.MATHMathSciNetCrossRefGoogle Scholar
  48. Imbens, G. W., & Wooldridge, J. M. (2009). Recent developments in the econometrics of program evaluation. Journal of Economic Literature, 47, 5–86. doi:10.1257/jel.47.1.5.CrossRefGoogle Scholar
  49. Irwin, D. A., & Klenow, P. J. (1996). High-tech R&D subsidies estimating the effects of Sematech. Journal of International Economics, 40, 323–344. doi:10.1016/0022-1996(95)01408-X.CrossRefGoogle Scholar
  50. Klette, T. J., Møen, J., & Griliches, Z. (2000). Do subsidies to commercial R&D reduce market failures? Microeconometric evaluation studies. Research Policy, 29, 471–495. doi:10.1016/S0048-7333(99)00086-4.CrossRefGoogle Scholar
  51. Koski, H., & Pajarinen, M. (2013). The role of business subsidies in job creation of start-ups, gazelles and incumbents. Small Business Economics, 41, 195–214. doi:10.1007/s11187-012-9420-5.CrossRefGoogle Scholar
  52. Koski, H., & Pajarinen, M. (2014). Subsidies, the shadow of death and labor productivity. Journal of Industry Competition and Trade,. doi:10.1007/s10842-014-0177-1.MATHGoogle Scholar
  53. Lach, S. (2002). Do R&D subsidies stimulate or displace private R&D? Evidence from Israel. The Journal of Industrial Economics, 50, 369–390. doi:10.1111/1467-6451.00182.CrossRefGoogle Scholar
  54. Lechner, M. (2002). Some practical issues in the evaluation of heterogeneous labour market programmes by matching methods. Journal of the Royal Statistical Society A, 165, 59–82. doi:10.1111/1467-985X.0asp2.MATHMathSciNetCrossRefGoogle Scholar
  55. Lechner, M., & Wunsch, C. (2013). Sensitivity of matching-based program evaluations to the availability of control variables. Labour Economics, 21, 111–121. doi:10.1016/j.labeco.2013.01.004.CrossRefGoogle Scholar
  56. Leiponen, A. (2005). Skills and innovation. International Journal of Industrial Organization, 23(5), 303–323. doi:10.1016/j.ijindorg.2005.03.005.CrossRefGoogle Scholar
  57. Lerner, J. (2002). When Bureaucrats meet entrepreneurs: The design of effective public venture capital’ programmes. The Economic Journal, 112, F73–F84. doi:10.1111/1468-0297.00684.CrossRefGoogle Scholar
  58. Link, A. N., & Scott, J. T. (2013). Public R&D subsidies, outside private support, and employment growth. Economics of Innovation and New Technology, 22(6), 537–550. doi:10.1080/10438599.2013.776744.CrossRefGoogle Scholar
  59. Mairesse, J., & Sassenou, M. (1991). R&D productivity: A survey of econometric studies at the firm level. NBER Working Paper,. doi:10.3386/w3666.Google Scholar
  60. Meuleman, M., & De Maeseneire, W. (2012). Do R&D subsidies affect SMEs’ access to external financing? Research Policy, 41, 580–591. doi:10.1016/j.respol.2012.01.001.CrossRefGoogle Scholar
  61. Mohnen, P., & Hall, B. H. (2013). Innovation and productivity: An update. Eurasian Business Review, 3(1), 47–65. doi:10.14208/BF03353817.Google Scholar
  62. Mohnen, P., & Röller, L. H. (2005). Complementarities in innovation policy. European Economic Review, 49(6), 1431–1450. doi:10.1016/j.euroecorev.2003.12.003.CrossRefGoogle Scholar
  63. Moretti, E., & Wilson, D. J. (2014). State incentives for innovation, star scientists and jobs: Evidence from biotech. Journal of Urban Economics, 79, 20–38. doi:10.1016/j.jue.2013.07.002.CrossRefGoogle Scholar
  64. Ortega-Argilés, R., Piva, M., Potters, L., & Vivarelli, M. (2010). Is corporate R&D investment in high-tech sectors more effective? Contemporary Economic Policy, 28, 353–365. doi:10.1111/j.1465-7287.2009.00186.x.CrossRefGoogle Scholar
  65. Ortega-Argilés, R., Potters, L., & Vivarelli, M. (2011). R&D and productivity: Testing sectoral peculiarities using micro data. Empirical Economics, 41(3), 817–839. doi:10.1007/s00181-010-0406-3.CrossRefGoogle Scholar
  66. Ortega-Argilés, R., Vivarelli, M., & Voigt, P. (2009). R&D in SMEs: A paradox? Small Business Economics, 33, 3–11. doi:10.1007/s11187-009-9187-5.CrossRefGoogle Scholar
  67. Özçelik, E., & Taymaz, E. (2008). R&D support programs in developing countries: The Turkish experience. Research Policy, 37, 258–275. doi:10.1016/j.respol.2007.11.001.CrossRefGoogle Scholar
  68. Rosenbaum, P. R., & Rubin, D. B. (1983). The central role of the propensity score in observational studies for causal effects. Biometrika, 70, 41–55. doi:10.1093/biomet/70.1.41.MATHMathSciNetCrossRefGoogle Scholar
  69. Santarelli, E., & Vivarelli, M. (2002). Is subsidizing entry an optimal policy? Industrial and Corporate Change, 11(1), 39–52. doi:10.1093/icc/11.1.39.CrossRefGoogle Scholar
  70. Takalo, T., Tanayama, T., & Toivonen, O. (2013). Estimating the benefits of targeted R&D subsidies. The Review of Economics and Statistics, 95, 255–272. doi:10.1162/REST_a_00280.CrossRefGoogle Scholar
  71. Veugelers, R., & Cassiman, B. (1999). Make and buy in innovation strategies: Evidence from Belgian manufacturing firms. Research Policy, 28(1), 63–80. doi:10.1016/S0048-7333(98)00106-1.CrossRefGoogle Scholar
  72. Wallsten, S. J. (2000). The effect of government-industry R&D programs on private R&D: The case of the small business innovation research program. RAND Journal of Economics, 31(1), 82–100. Retrieved from http://www.jstor.org/stable/2601030.
  73. Wanzenböck, I., Scherngell, T., & Fischer, M. (2013). How do firm characteristics affect behavioural additionalities of public R&D subsidies? Evidence for the Austrian transport sector. Technovation, 33, 66–77. doi:10.1016/j.technovation.2012.11.006.CrossRefGoogle Scholar
  74. Zúñiga-Vicente, J., Alonso-Borrego, C., Forcadell, F. J., & Galán, J. I. (2014). Assessing the effect of public subsidies on firm R&D investment: A survey. Journal of Economic Surveys, 28, 36–67. doi:10.1111/j.1467-6419.2012.00738.x.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media New York 2015

Authors and Affiliations

  1. 1.Jyväskylä University School of Business and EconomicsUniversity of JyväskyläJyväskyläFinland
  2. 2.Pellervo Economic Research PTTHelsinkiFinland

Personalised recommendations