Title: Impact and complementarity of public support to business funded R&D: the importance of policy-mix and policy stability

Authors: Celeste Varum; Miguel Viegas

Addresses: Department of Economics, Management and Industrial Engineering, University of Aveiro, GOVCOPP, 3810-193 Aveiro, Portugal ' Department of Economics, Management and Industrial Engineering, University of Aveiro, GOVCOPP, 3810-193 Aveiro, Portugal

Abstract: Investment in R&D is established as an important factor to economic growth and governments aim to encourage the national level of R&D using different policy instruments. The purpose of this paper is to obtain new evidence about a fundamental question of empirical studies on innovation policy. Does public spending on R&D contributes to increase private finance to R&D, that is, it has an additionality effect, or alternatively it substitutes the private investment? This study contributes to this debate, analysing the impact of different forms of public funding to R&D on R&D performed and financed by the private sector. Doing so we add to previous research by exploring how the policy-mix and instability are likely to influence the effectiveness of the instruments. This work applies the Arellano-Bond difference GMM estimator to analyse the impact of public support as a stimulus to private funded R&D in 16 OECD countries over 27 years (1981 to 2008), being unique in this respect. After studying the results of a baseline model, we extend the analysis in order to explore successively, the existence of non-linear effects, the effects of the instability of the instruments over time, and the interaction between the various incentive instruments.

Keywords: research and development; R&D policy; innovation policy; additionality; private R&D; public support; business funded R&D; policy mix; policy stability; R&D investment; public spending; private finance; OECD countries; incentives.

DOI: 10.1504/GBER.2015.072498

Global Business and Economics Review, 2015 Vol.17 No.4, pp.430 - 444

Available online: 15 Oct 2015 *

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