It's important for policymakers to know how effective R&D subsidies are. Reda Cherif, Fuad Hasanov et al. explore whether the impact is differential depending on the ownership, industry and firm size, to help focus scarce resources while increasing the overall impact.
In this working paper, the authors investigate the effect of Research & Development (R&D) subsidies on firms’ innovation by ownership, industry, and firm size using German firm-level data. The impact of R&D subsidies is heterogeneous across industries for multinational corporations (MNCs) and domestic firms while it does not differ substantially by firm size. Domestic firms have a larger response in R&D spending in low-tech manufacturing, knowledge-intensive services, and technological services while the response of domestic and foreign multinational companies (MNC) is broadly similar and is greater in medium-tech and high-tech manufacturing. Foreign MNC subsidiaries’ response in terms of patents is greater than that of domestic MNCs in most industries.