The impact of R&D subsidies under different institutional frameworks

This paper assesses the impact of public R&D subsidies on business R&D investment in heterogeneous institutional frameworks. Public support for research and innovation activities may leverage private resources when firms are constrained by lower quality public institutions, reducing uncertainty and favouring private risky investments. We develop an institutional index based on existing indicators and group regional economies on the basis of the quality of their public institutions. We use a comprehensive sample of Spanish firms observed over more than 20 years and a larger dataset of 13 European economies drawn from the Community Innovation Survey 2014 to test the policy impact in terms of private R&D expenditure for companies operating in different institutional frameworks. Our findings reject full crowding-out and show that beneficiary firms invest more in R&D than non-beneficiaries in all regions, including those with lower institutional quality. Our results support the case of policies that promote research and innovation activities in weaker institutional contexts.