Subsidizing R&D in Germany: Direct and Spillover Effects

Abstract

This study estimates the effects of research and development (R&D) funding on firm performance and innovation activity in Germany for the period of 2000 to 2020. Since R&D collaborations between funded and non-funded firms can lead to positive externalities, our study accounts not only for the direct effects of the policy on funded firms but also for indirect (spillover) effects on non-funded firms. We use multiple databases (DAFNE, PATSTAT, Förderkatalog) and conduct empirical estimations on both firm and cluster levels. Our findings suggest that, in general, R&D funding has a positive impact on both funded and non-funded firms, which varies with the share of funded firms in the cluster. Interestingly, the indirect impact on innovation is larger than the direct impact. The latter finding points out the advantages of this broad type of R&D funding (no sectoral or regional concentration) in enforcing innovation spillovers, but also highlights its limitation in generating stronger direct effects.