The effect of risk-sharing government subsidy on corporate R&D investment: Empirical evidence from Korea

Despite the wide belief that the high social rates of returns to R&D investment justify government subsidy policy in advanced countries, there are only limited studies about whether the R&D subsidy as a means of risk-sharing stimulates R&D investment of small and medium sized enterprises...

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Bibliographic Details
Published in:Technological forecasting & social change 2010-07, Vol.77 (6), p.881-890
Main Authors: Lee, Eui Young, Cin, Beom Cheol
Format: Article
Language:English
Subjects:
Capital costs
Developing Countries
Development Policy
Development Programs
Empirical analysis
Financing
Government
Government Policy
Government subsidies
Governments
Investment
LDCs
Manufacturers
New technology
Policies
R&D
R&D failure risk
Research & development
Risk assessment
Risk sharing
Small & medium sized enterprises-SME
Studies
Subsidies
Subsidies (financial)
Subsidy for new technology development
Technological change
Technological forecasting
Technological Innovations
Technology Policy
Two step Tobit
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Summary:Despite the wide belief that the high social rates of returns to R&D investment justify government subsidy policy in advanced countries, there are only limited studies about whether the R&D subsidy as a means of risk-sharing stimulates R&D investment of small and medium sized enterprises (SMEs) in developing countries. This paper empirically investigates the issue, using a unique data set on government subsidy for new technology development of Korean manufacturing firms, listed and non-listed, for the period from 2000 to 2007. The paper employs the DID estimation procedure and controls for simultaneity of the subsidy for new technology development using 2SLS and two step Tobit procedure. Our empirical results show that there is no solid evidence for crowding-out effects of the government subsidy. These results suggest that government subsidies could help SMEs to overcome the barriers to risky R&D projects through sharing R&D failure risk with government and by reducing capital costs to undertake new technology development projects, and thus the subsidy policy for new technology development seems to be partly successful in promoting the R&D investment of the Korean SMEs.
ISSN:0040-1625
1873-5509
DOI:10.1016/j.techfore.2010.01.012