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© 2022 International Monetary Fund
WP/22/192
IMF Working Paper
European Department
Promoting Innovation: The Differential Impact of R&D Subsidies
Prepared by Reda Cherif, Fuad Hasanov, Christoph Grimpe, and Wolfgang Sofka1
Authorized for distribution by Ivanna Vladkova Hollar
September 2022
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
ABSTRACT: We investigate the effect of R&D subsidies on firms’ innovation by ownership, industry, and firm size using German firm-level data. The impact of R&D subsidies is heterogeneous across industries for multinational corporations (MNCs) and domestic firms while it does not differ substantially by firm size. Domestic firms have a larger response in R&D spending in low-tech manufacturing, knowledge-intensive services, and technological services while the response of domestic and foreign MNCs is broadly similar and is greater in medium-tech and high-tech manufacturing. Foreign MNC subsidiaries’ response in terms of patents is greater than that of domestic MNCs in most industries.
| JEL Classification Numbers: | H25, H32, 030, 025 |
| Keywords: | Innovation; patents; research and development; R&D; subsidies; multinationals; investment; technology policy |
| Author’s E-Mail Address: | acherif@imf.org; fhasanov@imf.org; cg.si@cbs.dk; ws.si@cbs.dk |
| JEL Classification Numbers: | H25, H32, 030, 025 |
| Keywords: | Innovation; patents; research and development; R&D; subsidies; multinationals; investment; technology policy |
| Author’s E-Mail Address: | acherif@imf.org; fhasanov@imf.org; cg.si@cbs.dk; ws.si@cbs.dk |
Contents
Abstract
Introduction
Data, Descriptive Statistics, and Empirical Methodology
Results
Conclusion
References
Appendixes
TABLES
1. R&D Spending (in million euros): Descriptive Statistics by Ownership, Industry, and Size
2. Patent Applications in the Next 5 Years: Descriptive Statistics by Ownership, Industry, and Size…
3. R&D Spending: Weighted Regressions, Matched Sample
4. Patents: Weighted Regressions, Matched Sample
FIGURES
1. R&D Spending (log[1+R&D]) by Ownership
2. R&D Spending (log[1+R&D]) by Ownership and Subsidy (=1)
3. R&D Spending (log[1+R&D]) by Size and Subsidy (=1)
4. R&D Spending (log[1+R&D] and 5-Year Ahead Patents(log[1+Patents]) by Ownership and Subsidy (Red)
5. R&D Spending (log[1+R&D]) and 5-Year Ahead Patents (log[1+Patents]) by Industry and Subsidy (Red)
6. R&D Spending (log[1+R&D]) and 5-Year Ahead Patents (log[1+Patents]) by Size and Subsidy (Red)
Cherif and Hasanov: IMF. Grimpe: Copenhagen Business School and ZEW Leibniz Centre for European Economic Research. Sofka: Copenhagen Business School and University of Liverpool Management School. The authors thank Grazia Santangelo for excellent feedback and David Amaglobeli, Rodrigo Cerda, Ruud de Mooij, Mauricio Soto, and Yue Zhou for helpful comments. The work on this paper started when Wolfgang Sofka was a Visiting Scholar in the Institute for Capacity Development of the International Monetary Fund. He thanks the IMF for its hospitality. We are grateful to Jocelyne Vanderhaegen for formatting the paper. All errors are our own.