01 Feb 2005

Impact of Public R&D Financing on Private R&D

Does Financial Constraint Matter?

Jyrki Ali-Yrkko

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European Network of Economic Policy Research Institutes (ENEPRI) Working Paper No. 30, 17 pages

This study analyses how public R&D financing impacts companies. Our main goal is to study whether public and private R&D financing are substitutes or complements, and whether this impact differs between financially constrained and unconstrained companies. Our company-level panel data cover the period from 1996 to 2002. The statistical method employed in the research takes into account the possibility that receiving public support may be an endogenous factor. Our results suggest that public R&D financing does not crowd out privately financed R&D. Instead, receiving a positive decision to obtain public R&D funds increases privately financed R&D. Furthermore, our results suggest that this additionality effect is bigger in large firms than in small firms.