Competition & R&D Subsidies: New Perspectives on the Public-Private Nexus

Sammanfattning: Using a dynamic panel model, this paper empirically examines the effect of public R&D subsides on privately funded R&D in a new light. By synthesizing the theories on public R&D support with those on the relationship between R&D and market structure, we explore to what extent R&D expenditures may depend on public funding in a non-linear, concave fashion with respect to product market competition. In other words, we investigate whether the underlying mechanisms behind the invertedly U-shaped relationship between innovation activity and competition found by Aghion et al. (2005), also apply in the context of the leverage effect. Estimates using a difference GMM and X-differencing approach indicate strong support for the notion that public R&D subsidies complement private R&D funding. We are, however, not able to find any statistically significant results with regards to the inverted U and the relationship between the effectiveness of R&D subsidies and product market competition.