The Effect of R&D Subsidy for Small and Medium Enterprises

Research and development (R&D) is regarded as a core factor which decides the productivity of a firm in the analysis of modern industrial economics. But the R&D behavior and the consequent effect are observed to be different depending on the firm size and industry belonging. Despite the tendency to show less amount in its expenditure, R&D of small and medium enterprises (SMEs) is important because SMEs occupy major part in the number of firms and employees of a nation. This research analyzes the effect of R&D subsidy for SMEs across industry and national economy. In order to achieve the purpose, macroeconomic model of computable general equilibrium (CGE) is used. The typical form of CGE model is modified into knowledge-based one which has additional accounts and equations to incorporate R&D-related factors. Furthermore, social accounting matrix (SAM) in the model differentiates between SMEs and large firms in each industry. The simulation results are expected to show us that R&D in SMEs causes different effects and implications on various sides such as employment, knowledge stock and GDP growth. For example, subsidy for SMEs may not be relatively effective for GDP growth, but it may cause more increase in employment.