Misappropriation of R&D Subsidies: Estimating Treatment Effects with One-Sided Noncompliance

We investigate the misappropriation of R&D subsidies and evaluate its consequences for policy effectiveness. Using Chinese firm-level data for 2001-2011, we identify that 42% of grantees misused R&D subsidies, accounting for 53% of total R&D subsidies. Misappropriation leads to a substantial loss of the causal impact of R&D subsidies, as measured by the difference of the intention-totreat effect and complier average causal effect. Results show that R&D expenditures could have been stimulated beyond the subsidy amount (additionality), but noncompliance has resulted in medium-level partial crowding out. Overall, misappropriation has reduced the effectiveness of China’s R&D policy by more than half.

Böing, Philipp and Bettina Peters (2021), Misappropriation of R&D Subsidies: Estimating Treatment Effects with One-Sided Noncompliance, ZEW Discussion Paper No. 21-081, Mannheim.