Joint programming iniatives , R&D policy , virtual common pot , instrumental variable estimation , European research area
Abstract:
We investigate the effect of Europe's largest multilateral subsidy program for R&D-performing, small and medium-sized enterprises on firm growth. The
program was organized under a specific budget allocation rule, referred to as Virtual Common Pot (VCP), which is designed to avoid cross-subsidization
between participating countries. This rule creates exogenous variation in treatment status and allows us to identify the local average treatment effect
of public R&D grants. In addition, we compare the program's effect under the VCP rule with the standard situation of a Real Common Pot (RCP), where program authorities allocate a single budget according to uniform project evaluation criteria. Our estimates suggest no average effect of grants on firm growth but treatment effects are heterogeneous and increase with
project quality. A Real Common Pot would have reduced the cost of policyinduced job creation by 27%. We discuss the implications of our findings for the coordination of national policy programs within the European Research Area.
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