Value for Money? New Microeconometric Evidence on Public R&D Grants in Flanders

In this paper, we estimate the effect of subsidies granted by the Flemish government(northern region of Belgium) on R&D spending and R&D employment in recipient firms. As econometric treatment effects studies are nowadays standard in the scholarly literature and even in policy practice, we go beyond the typical applications. Usually scholars estimate a treatment effect on the treated, and then conclude whether a subsidy program is subject to full or partial crowding out effects. In this present study, we add a number of further tests that are of interest for policy makers in their daily decision making. The analyses are based on detailed discussions with the representatives of the public agency administering the innovation policy instruments in Flanders, the "IWT Vlaanderen". In particular, the policy makers were interested in the following questions: (i) Does the receipt of subsidies from other sources on top of IWT grants reduce the effect of the local policy program? (ii) Does the treatment effect decline if the same firm is funded repeatedly over time? (iii) Does granting multiple projects to the same recipient firm in the same time period decrease the treatment effect?

The paper discusses a number of further robustness tests and also includes a back of the envelope calculation where we extrapolate the sample results to the population of firms. We conclude that neither subsidies from other sources, nor funding the same firm repeatedly over time, nor granting multiple projects in the same time period reduce the treatment effect of an average, subsidized project in terms of additional R&D expenditure and R&D employment. With respect to the macroeconomic effect, we conclude that a total of 3,019 projects (total value € 628 million) granted between 2004 and 2010 has created (or maintained) about 16,800 person-years of R&D employment in the Flemish economy.

Czarnitzki, Dirk and Cindy Lopes-Bento (2012), Value for Money? New Microeconometric Evidence on Public R&D Grants in Flanders, ZEW Discussion Paper No. 12-034, Mannheim, published in: Research Policy.