Funding breakthrough innovation: evidence from a regression discontinuity

The Institute of Economics will hold one meeting of its Seminar Series on Tuesday, October 29, 2019: Pietro Santoleri from the Institute of Economics of Scuola Superiore Sant'Anna will present the paper "Funding breakthrough innovation: evidence from a regression discontinuity".

Abstract:

The paper investigates the impact of public R&D subsidies on a wide range of firm outcomes. We leverage the assignment mechanisms of the European SME Instrument and employ a sharp regression discontinuity design to provide quasi-experimental evidence on public R&D subsidies over broad geographical and sectoral scopes. Results show that business concept development grants (Phase I) have overall no statistically significant effect on firm-level outcomes. Conversely, product development grants (Phase II) have sizeable effects on a wide range of outcomes. Award-winning firms show stronger innovation performances as measured by cite-weighted patents; they display higher likelihood of receiving late-stage VC financing and lower likelihood of failure; they experience stronger growth in assets, employment and revenues. Finally, we show that the policy eases financial constraints and that the central mechanism driving the results is resourcing (i.e. funding) rather than certification (i.e. market signalling).