The Effect of R&D Subsidies on Private R&D

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. We find that for domestic plants small grants serve to increase private R&D spending, 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. Copyright (c) The London School of Economics and Political Science 2006.