Do research subsidies crowd out private R&D of large firms? Evidence from European Framework Programmes

Abstract

We evaluate whether public research subsidies are complements or substitutes to the private R&D spending of large firms. Combining data on the EC’s three most recent Framework Programmes (FP6, FP7 and H2020) with data on the world’s largest research companies, we use matching and difference-in-difference estimation to compute the causal impact of subsidies on private R&D spending. While, on average, subsidies have not led to increased private research budgets, we identify policy-relevant heterogeneities, finding that subsidies increased own R&D for smaller firms and projects as well as more R&D-intensive firms. We also find that Horizon 2020 successfully stimulated firms’ private R&D spending, while its predecessors did not.