The impact of R&D subsidy on innovation

This paper examines the impact of government assistance through R&D grants on innovation output for firms in New Zealand.

Using a large database that links administrative and tax data with survey data, we are able to control for large number of firm characteristics and thus minimise selection bias. We find that receipt of an R&D grant significantly increases the probability that a firm in the manufacturing and service sectors applies for a patent during 2005–2009, but no positive impact is found on the probability of applying for a trademark.

Using only firms that participated in the Business Operation Survey, we find that receiving a grant almost doubles the probability that a firm introduces new goods and services to the world while its effects on process innovation and any product innovation are relatively much weaker.

Moreover, there is little evidence that grant receipt has differential effects between small to medium (<50 employees) and larger firms. These findings are broadly in line with recent international evidence from Japan, Canada and Italy which found positive impacts of public R&D subsidy on patenting activity and the introduction of new products.

This Motu Working Paper 15-08 was produced under the Longitudinal Business Database Partnership, along with “Measuring the innovative activity of New Zealand firms”, by Simon Wakeman (NZPC) and Trinh Le (Motu). The research was funded by the Productivity Hub under the Longitudinal Business Database Productivity Partnership programme.

Keywords  Industrial policy, innovation, R&D

JEL codes  O31, O34, O38

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