Earlier versions of this paper have been presented at the DRUID Winter conference 2010, Aalborg, the XII. Spring Meeting of Young Economists 2010, Luxembourg, the NAKE Research Day 2010, Utrecht, the RWI Therapy Winter Seminar 2010 and the 50. ERSA Congress 2010, Jönköping.
Does Firm Size make a Difference? Analysing the Effectiveness of R&D Subsidies in East Germany
Article first published online: 13 SEP 2011
© 2011 The Authors. German Economic Review © 2011 Verein für Socialpolitik
German Economic Review
Volume 13, Issue 2, pages 174–195, May 2012
How to Cite
Alecke, B., Mitze, T., Reinkowski, J. and Untiedt, G. (2012), Does Firm Size make a Difference? Analysing the Effectiveness of R&D Subsidies in East Germany. German Economic Review, 13: 174–195. doi: 10.1111/j.1468-0475.2011.00546.x
- Issue published online: 18 APR 2012
- Article first published online: 13 SEP 2011
- Propensity score matching;
- R&D subsidies;
- East Germany;
We analyse the impact of public subsidies on private sector research and development (R&D) activity for a sample of East German firms. Using propensity score matching, our empirical results indicate that subsidized firms indeed show a higher level of R&D intensity (R&D expenditures relative to total turnover) and a higher probability for patent application compared with non-subsidized firms. We find that, on average, the R&D intensity increases from 1.5% to 3.9%. The probability of patent application rises from 20% to 40%. These results closely match earlier empirical findings for East Germany. Given the fact that the East German innovation system is particularly driven by small- and medium-sized enterprises (SMEs), we draw special attention to the effectiveness of R&D subsidies for this latter subgroup. Here, no specific empirical evidence is available so far. Our findings indicate that policy effectiveness also holds for private R&D activity of SMEs, with the highest increase in terms of R&D intensity being estimated for microbusinesses with up to ten employees.