Academic Research on SR&ED – Abstracts

^{Research Room at New York Public Library Photo by Diliff licensed under CC BY-SA 3.0}

What do companies that take advantage of R&D funding have in common? How is this funding distributed? What determines the effectiveness of research tax credits and innovation grants?

The answers to these questions have long been of interest to statisticians, economists, and policy academics. We’ve presented here a selection of research on the topic.

Note that since these are academic journal articles, most links will require login credentials. Alternatively, some may be available via Google Scholar.

Author(s)	Title	Journal	Publication year	Volume	Issue	Pages	Link	Abstract or Summary
Sveikauskas, L.	Technological Inputs and Multifactor Productivity Growth	The review of economics and statistics	1981	63	2	275-282	Link	Summary
Hamilton, R.	Tax Incentives and Innovation: The Canadian Treatment of R&D	Canada-United States Law Journal	1993	19		233-257	Link	Summary
Diamond P.A. and Mirrlees J.A.	Optimal Taxation and Public Production I: Production Efficiency	The American Economic Review	1971	61	1	42609	Link	Summary
Blais, R.	Compte rendu du séminaire sur les mesures fiscales d’incitation à la R&D	Conseil de la science et de la technologie	1989			59-97	Link (PDF)	Summary
Scherer, F.M.	R&D and Declining Productivity Growth	Journal Of The American Taxation Association	1983	73	2	215-218	Link	Summary
Sapona, I.	The Proposed New Scientific Research and Experimental Development Rules – An Update on Research Incentives	Bulletin for International Fiscal Documentation	1993	47	5	255-262	Link	Abstract
Berger P.G.	Explicit and Implicit Tax Effects of the R&D Tax Credit	Journal Of Accounting Research	1993	31	2	131-171	Link	Summary
Mansfield E.	The R&D Tax Credit and Other Technology Policy Issues	Canadian Public Policy	1986	76	2	190-194	Link	Summary
Mansfield E.	Industrial R&D in Japan and the United States: A Comparative Study	Research Policy	1988	78	2	223-228	Link	Summary
Minasian J.R.	Research and Development, Production Functions and Rates of Return	International Journal Of Production Economics	1969	59	2	80-85	Link	Summary
Link A.N.	Basic Research Productivity Increase in Manufacturing: Additional Evidence	Research Policy	1981	71	5	1111-1112	Link	Summary
Cusmano L.	European Research Joint Ventures and Innovation: A Microeconometric Analysis of RJV Impact on Firms' Patenting Activity	Nelson And Winter Conference	2001				Link	Abstract
Fecher F.	Effects Directs et Indirects de la R&D sur la Productivite: Une Analyse de l'Industrie Manufacturiere Belge	Brussels Economic Review	1990	128		459-483	Link	Abstract
Feldman M.P., Kelley M.	Leveraging Research and Development: Assessing The Impact of the U.S. Advanced Technology Program	Small Business Economics	2003	20	2	153-165	Link	Abstract
Capron H., Van Pottelsberghe B.	Public support to business R&D: A survey and some new quantitative evidence	Policy Evaluation In Innovation And Technology, OECD	1997	10		26-27	Link	Abstract
Gonzalez X., Jaumandreu J., Pazo C.	Barriers to Innovation and Subsidy Effectiveness	The Rand Journal Of Economics	2005	36	4	930-950	Link	Abstract
Audretsch D.B., Feldman M.P.	R&D Spillovers and the Geography of Innovation and Production	The American Economic Review	1996	86	3	630-640	Link	Abstract
Brat D.A., Park W.G.	Cross-Country R&D and Growth: Variations on a Theme of Mankiw-Romer-Weil	Eastern Economic Journal	1996	22	3	345-354	Link	Abstract
Wieser R.	Research and Development Productivity and Spillovers: Empirical Evidence at the Firm Level	Journal of economic surveys	2005	19	4	587-621	Link	Abstract
Surendra, G., Gu, W., Lee, F. C.	Information technology and labour productivity growth: an empirical analysis for Canada and the United States	Canadian Journal Of Economics	1999	32	2	384-407	Link	Abstract
Schankerman M.	The Effects of Double-Counting and Expensing on the Measured Returns to R&D	Journal Of Public Economics	1981	63	3	454-458	Link	Abstract
Sanyal P.	Understanding Patents: The Role of R&D Funding Sources and the Patent Office	International Journal Of Industrial Organization	2002	12	6	507-529	Link	Abstract
Russo B.	A Cost-Benefit Analysis of R&D Tax Incentives	The Review Of Economics And Statistics	2004	37	2	313-335	Link	Abstract
Peri G.	Knowledge Flows and Productivity	Economics Of Innovation And New Technology	2004			21-59	Link	Abstract
Niininen P.	Effect of Publicly and Privately Financed R&D on Total Factor Productivity Growth	The Canadian Journal Of Economics	2000	13	1	56-68	Link	Abstract
Nadiri M.I.	Technical Change, Returns to Scale, and the Productivity Slowdown	Economic Inquiry	1981	71	2	314-319	Link	Abstract
Freeman, C., Oldham, C. H. G., Cooper, C. M., Sinclair, T. C., & Achilladelis, B. G.	The Goals of R&D in the 1970s	Social Studies of Science	1971	1	3-4	357-406	Link	Abstract
Iqbal, M.	R&D Tax Incentive Comparisons: Canadian and US Large Manufacturing Industries	Canadian Tax Journal/Revue Fiscale	1995	43		120-31	Link	Abstract
Lipsett, M. S., & Lipsey, R. G.	Benchmarks, yardsticks and new places to look for industrial innovation and growth	Science and Public Policy	1995	22	4	259-265	Link	Abstract
McKenzie, K. J.	Tax subsidies for R&D in Canadian Provinces	Canadian Public Policy/Analyse de Politiques	2005			29-44	Link	Abstract
Salazar, M., & Holbrook, A	Canadian science, technology and innovation policy: The product of regional networking?	Regional Studies	2007	41	8	1129-1141	Link	Abstract
Baghana, R., & Mohnen, P	Effectiveness of R&D tax incentives in small and large enterprises in Quebec	Small Business Economics	2009	33	1	91-107	Link	Abstract
Czarnitzki, D., Hanel, P., & Rosa, J. M.	Evaluating the impact of R&D tax credits on innovation: A microeconometric study on Canadian firms	Research Policy	2011	40	2	217-229	Link	Abstract
Colombo, M. G., Grilli, L., & Murtinu, S.	R&D subsidies and the performance of high-tech start-ups	Economics Letters	2011	12	1	97-99	Link	Abstract
Lester, J.	Benefit-cost analysis of R&D support programs	Canadian Tax Journal/Revue Fiscale	2012	60	4	793-836	Link	Abstract
Davies, J. B., & Slivinski, A.	Economic efficiency of federal provision of scientific information and support for science research in Canada	Canadian Public Policy	2015	41	4	332-342	Link	Abstract
Garza, D., Giat, Y., Hackman, S. T., & Peled, D.	A computational analysis of R&D support programs.	Economics Of Innovation And New Technology	2015	24	7	682-709	Link	Abstract
Xu B., Wang J.	Capital Goods Trade and R&D Spillovers in the OECD	The Canadian journal of economics	1999	32	5	1258-1274	Link	Abstract
Wolff E.N., Ishaq Nadiri M	Spillover effects, linkage structure, and research and development	Structural Change and Economic Dynamics	1993	4	2	315-331	Link	Abstract
Van Pottelsberghe B., Lichtenberg, F.R.	International R&D Spillovers: A Comment	European Economic Review	1998	42	8	1483-1491	Link	Abstract
Tsai D.H.	Knowledge Spillovers and High-technology Clustering: Evidence from Taiwan's Hsinchu Science-Based Industrial Park	Contemporary economic policy	2005	23	1	116-128	Link	Abstract
Trajtenberg, M.	The Welfare Analysis of Product Innovations, with an Application to Computed Tomography Scanners	Journal of Political Economy	1989	97	2	444-479	Link	Abstract
Swenson C.W.	Some tests of the incentive effects of the research and experimentation tax credit	Journal of public economics	1992	49	2	203-218	Link	Abstract
Suzuki K.	R&D spillovers and technology transfer among and within vertical keiretsu groups: Evidence from the Japanese electrical machinery industry	International Journal of Industrial Organization	1993	11	4	573-591	Link	Abstract
Spencer J.W.	How Relevant is University-Based Scientific Research to Private High Technology Firms? A U.S.-Japan Comparison	The Canadian Journal Of Economics	2001				Link	Abstract
Sorensen A., Kongsted H.C., Marcusson, M.	R&D, Public Innovation Policy, And Productivity: The Case Of Danish Manufacturing	Structural Change And Economic Dynamics	2003	12	2	163-178	Link	Abstract
Siegel D.S., Westhead P., Wright M.	Assessing the impact of university science parks on research productivity: exploratory firm-level evidence from the United Kingdom	Journal Of Economic Surveys	2003	21	9	1357-1369	Link	Abstract
Salter A.J., Martin B.R.	The economic benefits of publicly funded basic research: a critical review	Academy Of Management Journal,	2001	30	3	509-532	Link	Abstract
Sakurai N., Papaconstantinou G.,Ioannidis E.	Impact of R&D and Technology Diffusion on Productivity Growth: Empirical Evidence for 10 OECD Countries	Economics Of Innovation And New Technology	1997	9	1	81-109	Link	Abstract
Saal D.S.	The Impact of Procurement-Driven Technological Change on U.S. Manufacturing Productivity Growth	International Journal Of Industrial Organization	2001	12	6	537-568	Link	Abstract
Rye M.	Evaluating the Impact of Public Support on Commercial Research and Development Projects: Are Verbal Reports of Additionality Reliable?	The American Economic Review	2002	8	2	227-248	Link	Abstract
Poole E., Bernard J.T.	Defence Innovation Stock and Total Factor Productivity	The Journal Of Political Economy	1992	25	2	438-452	Link	Abstract
Park W.G.	International R&D Spillovers and OECD Economic Growth	Research Policy	1995	33	4	571-591	Link	Abstract
Park J.	International and Intersectoral R&D Spillovers in the OECD and East Asian Economies	Economic Systems Research	2004	42	4	739-757	Link	Abstract
Parisi M.L., Sembellini A.	Is Private R&D Spending Sensitive to its Price? Empirical Evidence on Panel Data for Italy	Defence And Peace Economics	2003	30	4	357-377	Link	Abstract
Odagiri H., Murakami N.	Private and quasi-social rates of return on pharmaceutical R&D in Japan	Evaluation	1992	21	4	335-345	Link	Abstract
Odagiri H.	Research Activity, Output Growth, and Productivity Increase in Japanese Manufacturing Industries	Canadian Journal Of Economics	1985	14	3	117-130	Link	Abstract
Nguyen S.V., Kokkelenberg E.C.	Measuring Total Factor Productivity, Technical Change and the Rate of Returns to Research and Development	Rivista Di Politica Economica	1996	2	4	269-282	Link	Abstract
Monjon S., Waelbroeck P.	Assessing spillovers from universities to firms: evidence from French firm-level data	Research Policy	2003	21	9	1255-1270	Link	Abstract
Mohnen P., L¬épine N	R&D, R&D spillovers and payments for technology: Canadian evidence	Research Policy	1991	2	1	213-228	Link	Abstract
Medda G., Piga C., Siegel D.S.	Assessing the returns to collaborative research: Firm-level evidence from Italy	American Economic Review	2006	15	1	37-50	Link	Abstract
McKenzie K.J.	Tax Subsidies for R&D in Canadian Provinces	Structural Change And Economic Dynamics	2005	31	1	29-44	Link	Abstract
McCutchen W.W.	Estimating the impact of the R&D tax credit on strategic groups in the pharmaceutical industry	The American Economic Review	1993	22	4	337-351	Link	Abstract
Mansfield E., Switzer L.	The effects of R&D tax credits and allowances in Canada	Canadian Public Policy	1985	14	2	97-107	Link	Abstract
Mansfield E., Switzer L.	How Effective are Canada's Direct Tax Incentives for R and D?	Research Policy	1985	11	2	241-246	Link	Abstract
Makki S.S., Thraen C.S., Tweeten L.G.	Returns to American Agricultural Research: Results from a Cointegration Model	The American Economic Review	1999	21	2	185-211	Link	Abstract
Luintel K.B., Khan M.	Are International R&D Spillovers Costly for the United States?	Journal Of Policy Modeling	2004	86	4	896-910	Link	Abstract
Los B., Verspagen B.	R&D spillovers and productivity: Evidence from U.S. manufacturing microdata	The Review Of Economics And Statistics	2000	25	1	127-148	Link	Abstract
Link A.N., Paton D., Siegel D.S.	An econometric analysis of trends in research joint venture activity	Empirical Economics	2005	26	2	149-158	Link	Abstract
Link A.N., Paton D., Siegel D.S.	An Analysis of Policy Initiatives to Promote Strategic Research Partnerships	Managerial And Decision Economics	2002	31	8	1459-1466	Link	Abstract
Licht G., Zoz K.	Patents and R&D: An Econometric Investigation Using Applications for German, European and US Patents by German Companies	The American Economic Review	1998	49	49/50	329-360	Link	Abstract
Koga T.	R&D Subsidy and Self-Financed R&D: The Case of Japanese High-Technology Start- Ups	International Workshop On Empirical Studies On Innovation In Europe	2003	24	1	53-62	Link	Abstract
Klette T.J.,Johansen F.	Accumulation of R&D Capital and Dynamic Firm Performance: A Not-so-Fixed Effect Model	Annales D'Economie Et De Statistique	1998	49	49/50	389-419	Link	Abstract
Klette T.J., Moen J., Griliches Z.	Do Subsidies to Commercial R&D Reduce Market Failures? Microeconometric Evaluation Studies	Small Business Economics	2000	29	4	471-495	Link	Abstract
Klette T.J.	R&D, Scope Economies and Plant Performance	The Rand Journal Of Economics	1996	27	3	502-522	Link	Abstract
Klassen K.J.,Pittman J.A., Margaret P.	A Cross-National Comparison of R&D Expenditure Decisions: Tax Incentives and Financial Constraints	Contemporary Accounting Research	2004	21	3	639-680	Link	Abstract
Jaffe A.B., Lerner J.	Reinventing Public R&D: Patent Policy and the Commercialization of National Laboratory Technologies	The Rand Journal Of Economics	2001	32	1	167-198	Link	Abstract
Jaffe A.B.	Demand and Supply Influences in R&D Intensity and Productivity Growth	The Review Of Economics And Statistics	1988	70	3	431-437	Link	Abstract
Hujer R., Radic D.	Evaluating the Impacts of Subsidies on Innovation Activities in Germany	Scottish Journal Of Political Economy	2005	52	4	565-586	Link	Abstract
Hubert F., Pain N.	Inward Investment and Technical Progress in the UK Manufacturing Sector	Scottish Journal Of Political Economy	2001	48	2	134-147	Link	Abstract
Harhoff D.	R&D and Productivity in German Manufacturing Firms	Economics Of Innovation And New Technology	1998	6	1	29-50	Link	Abstract
Hanel P.	R&D, Inter-industry and International Technology Spillovers and the Total Factor Productivity Growth of Manufacturing Industries in Canada 1974-1989	Economic Systems Research	2000	12	3	3-361	Link	Abstract
Hanel P.	L'Effet des Depenses en R&D sur la Productivitee de Travail au Quebec	L'Actualite Economique	1988	64	3	396-415	Link	Abstract
Guellec D., Van Pottelsberghe B.	From R&D to Productivity Growth: Do the Institutional Settings and the Source of Funds of R&D Matter?	Oxford Bulletin Of Economics And Statistics	2004	66	3	353-378	Link	Abstract
Guellec D., Van Pottelsberghe B.	The Impact of Public R&D Expenditure on Business R&D	Economics Of Innovation And New Technology	2003	12	3	225-243	Link	Abstract
Griliches Z., Lichtenberg F.	Interindustry Technology Flows and Productivity Growth: A Reexamination	The Review Of Economics And Statistics	1984	66	2	324-329	Link	Abstract
Griffith R., Redding S., Van Reenen J	Measuring the Cost-Effectiveness of an R&D Tax Credit for the UK	Fiscal Studies	2001	22	3	375-399	Link	Abstract
Goto A., Suzuki K.	R&D Capital, Rate of Return on R&D Investment and Spillover ofR&D in Japanese Manufacturing Industries	The Review Of Economics And Statistics	1989	71	4	555-564	Link	Abstract
Goolsbee A.	Investment Subsidies and Wages in Capital Goods Industries: To the Workers Go the Spoils?	National Tax Journal	2003	56	1	153-165	Link	Abstract
Gonzalez X., Pazo C.	Do Public Subsidies Stimulate Private R&D Spending?	32nd Conference Of The European Association For Research In Industrial Economics (earie)	2005	32	3	371-389	Link	Abstract
Funk M.	Basic Research and International Spillovers	International Review Of Applied Economics	2002	16	2	217-226	Link	Abstract
Folster S.	Do Subsidies to R&D Actually Stimulate R&D Investment and cooperation?	Research Policy	1996	24	3	403-417	Link	Abstract
Fecher F., Perelman S.	Total Factor Productivity, Technical Progress and Efficiency: A Comparative Study of 14 Belgian Industrial Sectors (With English summary)	Annales D'Economie Et De Statistique	1989	13	13	93-118	Link	Abstract
Falk M.	What Drives Business R&D Intensity Across OECD Countries	Applied Economics	2006	38	5	533-547	Link	Abstract
Evans C.	Studying the Studies: An Overview of Recent Research into Taxation Operating Costs	EJournal Of Tax Research	2003	1	1		Link	Abstract
Eisner R., Albert S.H., Sullivan M.A.	The New Incremental Tax Credit for R&D: Incentive or Disincentive?	National Tax Journal	1984	37	2	171-183	Link	Abstract
Diao X., Roe T., Yeldan E.	Strategic Policies and Growth: An Applied Model of R&D- Driven Endogenous Growth	Journal Of Development Economics	1999	60	2	343-380	Link	Abstract
Dahlby B.	A Framework for Evaluating Provincial R&D Tax Subsidies	Canadian Public Policy	2005	31	1	45-58	Link	Abstract
Czarnitzki D., Licht G.	Additionality of public R&D grants in a transition economy	Economics Of Transition	2006	14	1	101-131	Link	Abstract
Cordes J.J.	Tax incentives and R&D spending: A review of the evidence	Research Policy	1989	18	3	119-133	Link	Abstract
Cohen W.M., Nelson R.R.,Walsh J.P.	Links and Impacts: The Influence of Public Research on Industrial R&D	Management Science	2002	48	1	42392	Link	Abstract
Capron H., Cincera M.	Assessing the R&D Determinants and Productivity of Worldwide Manufacturing Firms	Annales De L'institut Henri Poincare Probabilites Et Statistiques	1998	49	49/50	565-587	Link	Abstract
Callejon M., Garcia-Quevedo J.	Public Subsidies to Business R&D: Do they Stimulate Private Expenditures?	Environment And Planning. C, Government & Policy	2005	70	277	121-141	Link	Abstract
Busom, I.	An Empirical Evaluation of The Effects of R&D Subsidies	Economics Of Innovation And New Technology	2000	9	2	111-148	Link	Abstract
Browning E., Gronberg T., Liu L.	Alternative Measures of the Marginal Cost of Funds	Economic Inquiry	2000	38	4	591-599	Link	Abstract
Bonte W.	Spillovers from Publicly Financed Business R&D: Some Empirical Evidence from Germany	Research Policy	2004	33	10	1635-1655	Link	Abstract
Bonte W.	Does Federally Financed Business R&D Matter for US Productivity Growth?	Applied Economics	2003	35	15	1619-1625	Link	Abstract
Bonte W.	R&D and Productivity: Internal vs. External R&D: Evidence from West Germany Manufacturing Industries	Economics Of Innovation And New Technology	2003	12	4	343-360	Link	Abstract
Blanes J.V., Busom I.	Who participates in R&D subsidy programs?: The case of Spanish manufacturing firms	Research Policy	2004	33	10	1459-1476	Link	Abstract
Billings B.A., Musazi B.G.,Moore J.W.	The effects of funding source and management ownership on the productivity of R&D	R&d Management	2004	34	3	281-294	Link	Abstract
Bernstein J.I., Yan X.	Canadian-Japanese R&D Spillovers and Productivity Growth	Applied Economics Letters	1996	3	12	763-767	Link	Abstract
Bernstein J.I., Nadiri M.I.	Research and Development and Intraindustry Spillovers: An Empirical Application of Dynamic Duality	The Review Of Economic Studies	1989	56	186	249-269	Link	Abstract
Bernstein J.I., Mamuneas T.P.	Structural Change and Economic Dynamics	Structural Change And Economic Dynamics	2006	17	1	70-98	Link	Abstract
Bernstein J.I.	Factor Intensities, Rates of Return, and International R&D Spillovers: The Case of Canadian and U.S. Industries	Annales De L'Institut Henri Poincare Probabilites Et Statistiques	1998		49/50	541-564	Link	Abstract
Bernstein J.I.	Interindustry R&D Spillovers for Electrical and Electronic Products: The Canadian Case	Economic Systems Research	1997	9	1	111-125	Link	Abstract
Bernstein J.I.	Costs of Production, Intra- and Interindustry R&D Spillovers: Canadian Evidence	The Canadian Journal Of Economics	1988	21	2	324-347	Link	Abstract
Bernstein J.I.	The Effect of Direct and Indirect Tax Incentives on Canadian Industrial R&D Expenditures	Canadian Public Policy	1986	12	3	438-448	Link	Abstract
Bernstein J.I.	The Structure of Canadian Interindustry R&D Spillovers and the Rates of Return to R&D	The Journal Of Industrial Economics	1989	37	3	315-328	Link	Abstract
Berman E.M.	The economic impact of industry-funded university R&D	Research Policy	1990	19	4	349-355	Link	Abstract
Benfratello L., Sembenelli A.	Research joint ventures and firm level performance	Research Policy	2002	31	4	493-507	Link	Abstract
Beise M., Stahl H.	Public research and industrial innovations in Germany	Research Policy	1999	28	4	397-422	Link	Abstract
Adams J.D., Chiang E.P., Jensen J.L.	The Influence of Federal Laboratory R&D on Industrial Research	The Review Of Economics And Statistics	2003	85	4	1003-1020	Link	Abstract
Tillinger J.W.	An Analysis of the Effectiveness of the Research and Experimentation Tax Credit in a q Model of Valuation	Journal of the American Taxation Association	1991	13	2		Not Found
McFetridge, D.G. and J.P. Warda.	Canadian R&D Incentives: Their Adequacy and Impact	Canadian Tax Foundation	1983		70		Not Found
Rogers, Bereskin and Parr.	Research and Development in Canada: A Practical Guide to Financing, Protecting and Exploiting New Technology		1987				Not Found
Nadiri M.I., Prucha I.R.	Sources of growth of output and convergence of productivity in major OECD countries	International Journal of Production Economics	1997	52	1	133-146	Link
Globerman S.	The Empirical Relationship Between R&D and Industrial Growth in Canada	Applied Economics	1972	4	3	181-192	Link
Ducharme L.M., Mohnen P.	Externalities and R&D Social Rate of Return (With English summary)	Economies Et Societes	1996	30	7	193-217	Not Found
Sweeny, T. and Robertson, C.	Income Tax Incentives for Canadian Research and Development	Canadian Taxation Review	1989	37	2	310-340	Not Found
Leo H.	Determinants of Innovative Activities at the Firm Level	Annales D'Economie Et De Statistique	2003	72	3	285-318	Not Found
Brouwer E., Poot T., Hertog, P., Grosfeld, T.	Evaluation of a Major Dutch Tax Credit Scheme (WBSO) Aimed at Promoting R&D	FTEVAL Conference On The Evaluation Of Government Funded R&d Activities	2003				Not Found
Warda, J.	International Competitiveness of Canadian R&D Tax Incentives: An Update	Conference Board of Canada	1995			55-90	Not Found
Doern, Bruce G.	Institutional aspects of R&D tax incentives: the SR&ED tax Credit	Industry Canada White Paper	1995				Link
Warda, J.	Improving Canada's SR&ED Tax Incentive Program	Conference Board of Canada	1998				Link
Nickerson, J., Rogers, A., Farrington, A., Nguyen, A.	Practical documentation of qualifying research activities for the SR&ED tax credit	Journal of Accounting and Taxation	2019	11	1	1-8	Link	Abstract
Perreault, Lucille	Scientific Research and Experimental Development (SR&ED) Engagement and Management by Small Canadian-Controlled Private Corporations (CCPCs)	Doctoral Thesis submitted to the Faculty of Graduate and Postdoctoral Affairs, University of Carleton at Ottawa, ON.	2020				Link	Abstract
Lester, J.	Benefit-Cost Analysis of Federal and Provincial SR&ED Investment Tax Credits	The School of Public Policy Publications	2021	14	1		Link	Abstract
Lee S.K., Mahl S.K., Green J.J., Lexchin J.	Multinational Pharmaceutical Companies Shortchange Canada in Research and Development Investments: Is It Time to Pursue Other Options?	Healthcare Policy	2023	18	3	17-24	Link	Abstract
Gagnon, M.	Commentary: Reconsidering Pharmaceutical Research and Development Investments	Healthcare Policy	2023	18	3	25-30	Link	Abstract
Tamini, L. & Valea, A.	Investment in research and development and export performances of Canadian small and medium-sized agri-food firms	Canadian Journal of Agricultural Economics	2021	69	3	311-336	Link	Abstract
Denney, S., Southin, T., & Wolfe, D.	Do winners pick government? How scale-up experience shapes entrepreneurs’ assessments of innovation policy mixes	Science and Public Policy	2023	50	5	858–870	Link	Abstract
Boadway, R., Tremblay, J-F	Policy Forum: The Uneasy Case for a Canadian Patent Box	Canadian Tax Journal	2017	65	1	61	Link	Abstract
Lester, J.	Tax Support for R&D and Intellectual Property: Time for Some Bold Moves	C.D. Howe Institute e-brief	2022	330			Link	Abstract
Crisan, D., McKenzie, K.	Finances of the Nation Tax Subsidies for R & D in Canada, 1981-2016	Canadian Tax Journal	2017	65	4	951-81	Link	Abstract

Abstracts

The Influence of Federal Laboratory R&D on Industrial Research

Adams, J.D., Chiang, E.P. and Jensen, J.L.

This paper studies the influence of R&D in the U.S. federal laboratory system, the world’s largest, on firm research. Our results are based on a sample of 220 industrial research laboratories that work with a variety of federal laboratories and agencies and are owned by 115 firms in the chemicals, machinery, electrical equipment, and motor vehicles industries. Using an indicator of their importance to R&D managers, we find that cooperative research and development agreements (CRADAs) dominate other channels of technology transfer from federal laboratories to firms. With a CRADA industry laboratories patent more, spend more on company-financed R&D and devote more resources to their federal counterparts. Without this influence, patenting stays about the same, and only federally funded R&D increases, mostly because of government support. The Stevenson-Wydler Act and amendments during the 1980s introduced CRADAs, which legally bind federal laboratories and firms together in joint research. In theory, the agreements could capitalize on complementarities between public and private research. Our results support this perspective and suggest that CRADAs may be more beneficial to firms than other interactions with federal laboratories, precisely because of the mutual effort that they demand from both parties.

Public research and industrial innovations in Germany

Beise, M. and Stahl, H.

This paper deals with the effects of publicly funded research at universities, polytechnics and federal research laboratories on industrial innovations in Germany. We discuss the characteristics of companies that benefit from the findings of public research institutions. In questioning 2300 companies, we found that less than one-tenth of product- or process-innovating firms introduced innovations between 1993 and 1995 that would not have been developed without public research. These new products amount to approximately 5% of all new product sales. Firms cite universities with publicly supported innovations as the most important source, although publicly financed laboratories get almost as many citations. Big science laboratories are almost invisible, suggesting that their technology transfer to industrial firms still lacks effectiveness. Firms also tend to cite research institutions that are located close to the firm. But contrary to the widely held opinion that proximity to public research institutions does promote collaboration between firms and public research and increase the number of received knowledge spillovers, we found no higher probability of publicly supported innovations for firms in Germany that are located near universities or polytechnics. However, the firm’s own R&D activities instead support the ability to absorb the findings of public research and turn them into innovations. Additionally, firms with high R&D intensities cite remote public research institutes more frequently than less R&D-intensive firms, suggesting that in Germany, high-technology does not depend on the co-location of public and private research.

Research joint ventures and firm level performance

Benfratello, L. and Sembenelli, A.

In this paper, we test whether participation in EU sponsored research joint ventures (RJVs) has a positive impact on participating firms’ performance. We apply our statistical methodology to RJVs sponsored under two different programs: EUREKA and (3rd and 4th) Framework Programs for Science and Technology (FPST). Overall results show quite a different impact for firms participating in the two programs: a positive association between participation, labour productivity and price cost margin in the case of EUREKA, while firms participating FPST RJVs do not show any clear pattern.

The economic impact of industry-funded university R&D

Berman, E.M.

In recent years, industry has increased its direct funding of university R&D. This article examines whether such “collaborative” R&D leads to increases in technological innovation in industry. Data are analyzed for the years 1953 through 1986. It is found that direct industry funding of university research is associated with subsequent increases in industry R&D expenditures. These expenditures include funding from both federal and industry sources. This increase in R&D expenditures occurs with a median lag of five years. Rival hypotheses are examined, such as the effect of general university research expenditures. However, these hypotheses are rejected. This article concludes by raising significant implications for policy.

The Structure of Canadian Interindustry R&D Spillovers and the Rates of Return to R&D

Bernstein, J.I.

This paper estimates the effects of inter-industry R&D and R&D spillovers on the production cost of nine major Canadian industries. Production costs in all nine are affected by spillovers and six industries are influenced by at least two different source industries. Rates of return to R&D capital for each industry are also estimated. Private rates of return on R&D are at least two and a half times those on physical capital. Rates of return on R&D, inclusive of spillovers, are also computed: for industries, which are major sources of spillover, the spillover-inclusive returns are at least twice the private returns.

The Effect of Direct and Indirect Tax Incentives on Canadian Industrial R&D Expenditures

Bernstein, J.I.

Industrial performance is influenced by the rate of investment in research and development (R&D). Western developed countries, and Canada in particular have attempted to stimulate industrial R&D expenditures through the use of tax incentives. The purpose of this paper is to estimate the effects of both direct and indirect tax incentives on R&D expenditures. The results are based on an econometric study of production and investment of Canadian firms. The results show that when there is no growth in the economy the R&D investment tax credit and special allowance generate about $.80 of additional R&D expenditures per dollar of foregone tax revenues to the government. When output expands, the additional R&D expenditures increase by more than the dollar cost to the government. In addition, the business fixed investment tax credit is an indirect incentive, which causes R&D expenditures to increase by about 10 per cent of the increase obtained for the direct incentives.

Costs of Production, Intra- and Interindustry R&D Spillovers: Canadian Evidence

Bernstein, J.I.

This paper presents estimates of the effects of intra- and interindustry R&D investment spillovers on the costs and structure of production. The social rates of return to R&D investment and their deviation from the private rate are also estimated. This is the first time that the consequences of R&D spillovers are evaluated for Canadian industries. Intra- and interindustry spillovers decrease unit costs of production. Moreover, interindustry effects are substantially more elastic. Generally, a firm’s own R&D capital is a substitute for R&D capital obtained freely via spillovers. However, for firms operating in industries with relatively larger R&D propensities, their own R&D capital and the intra-industry spillover are complementary. In all industries, the social rate of return greatly exceeds the private return, and the contribution of the interindustry spillover to the social return is virtually the same and small for all industries. Thus differentials between social and private returns and between social returns across industries depend on the extent of the intra-industry spillovers.

Interindustry R&D Spillovers for Electrical and Electronic Products: The Canadian Case

Bernstein, J.I.

This paper estimates the effects of interindustry R&D spillovers on the cost and production structure for 10 Canadian manufacturing industries. Because of their high-tech nature and productivity performance, spillovers from electrical and electronic products are distinguished from other spillover sources. Generally, spillovers from electrical and electronic products generate cost reductions and render production processes for Canadian manufacturing industries more capital intensive (i.e. either more physical or R&D capital intensive). Social rates of return for R&D capital are calculated for all 10 industries. The social rates are 5-11 times greater than are the private rates. Indeed, the social rates are high for all the industries. This implies that the electrical and electronic products industry is an important interindustry spillover source but, like other industries, a major spillover-using industry.

Factor Intensities, Rates of Return, and International R&D Spillovers: The Case of Canadian and U.S. Industries

Bernstein, J.I.

This paper estimates the effects of both intranational and international spillovers on production cost, and factor intensities (including R&D intensity) for eleven manufacturing industries in the U.S., and Canada. In addition, social rates of return to R&D capital are calculated and decomposed into private rates of return, and the extra-returns due to intranational and international spillovers. International spillovers are usually cost-reducing and increase R&D and physical capital intensities. International spillovers are generally labour and intermediate input intensity reducing. In Canada, international spillover effects are more elastic than domestic spillover elasticities. In the U.S. the same relationship exists but is not as pronounced. Social rates of return to R&D capital are substantially above the private rates in both Canada and U.S. In Canada, international spillovers generally account for a greater percentage of the social returns relative to the domestic spillovers. In the U.S. the converse occurs. Canadian social rates are from two and a half to twelve times greater than private returns, while U.S. social returns are from three and a half to ten times greater than the private rates.

Structural Change and Economic Dynamics

Bernstein, J.I. and Mamuneas, T.P.

This paper estimates R&D depreciation rates for U.S. R&D intensive industries. R&D annually depreciates at; 18% for chemical products, 26% for nonelectrical machinery, 29% for electrical products, and 21% for transportation equipment. These depreciation rates lead to new estimates of the marginal (gross of depreciation) returns to R&D capital; 0.25 for chemical products, 0.31 for nonelectrical machinery, 0.34 for electrical products, and 0.27 for transportation equipment. R&D investment significantly contributed to productivity growth; virtually 100% in chemical products, 55% in nonelectrical machinery, 38 percent in electrical products, and 84% in transportation equipment.

Research and Development and Intraindustry Spillovers: An Empirical Application of Dynamic Duality

Bernstein, J.I. and Nadiri, M.I.

In this paper we estimate a model of production and investment based on the theory of dynamic duality. We are particularly interested in the effects of R&D spillovers and in calculating the social and private rates of return. There are three effects associated with the intra-industry R&D spillover. First, costs decline as knowledge expands for the externality-receiving firms. Second, production structures are affected, as factor demands change in response to the spillover. Third, the rates of capital accumulation are affected by the R&D spillover. These cost-reducing, factor-biasing and capital adjustment effects are estimated for four industries.

Canadian-Japanese R&D Spillovers and Productivity Growth

Bernstein, J.I. and Yan, X.

R&D spillovers contribute to total factor productivity (TFP) growth. This paper examines the contribution of intranational and international R&D spillovers between Canada and Japan to industrial TFP growth. TFP growth is measured and decomposed for 10 Canadian and Japanese manufacturing industries. Generally, spillovers contribute to productivity gains. We find that domestic spillovers contribute more than international spillovers. Moreover, in industries where marginal propensities to spend on R&D are relatively lower, domestic spillovers reduce TFP growth.

The effects of funding source and management ownership on the productivity of R&D

Billings, B.A., Musazi, B.G. and Moore, J.W.

This study investigates the influence of the source of R&D funds and management ownership on R&D productivity. The lagged effect of the source of R&D funds on R&D output is investigated for a sample of US manufacturing firms in five industries over the 1996-99 period. Estimates based on 779 firm-years show that R&D productivity increases with the proportion of stock held by managers and directors of firms primarily in the Other Electronics industry. The estimates also show that recipients of government-sponsored R&D funds in the Chemicals industry have lower levels of output (sales) for each dollar committed to R&D. In addition, output for firms in the Chemicals industry worsens as management stockholding increases, implying an agency cost rationale for the observed difference in output. The implication is that firms with high manager-owner content are less productive with government-sponsored R&D than with company-financed R&D. The reported results suggest that potential agency costs should be incorporated in government-sponsored R&D contracts. It also suggests that the source of R&D funds should be disclosed and incorporated into the valuation of intangible assets attributable to research and development.

Who participates in R&D subsidy programs?: The case of Spanish manufacturing firms

Blanes, J.V. and Busom, I.

Empirical evidence on the effectiveness of R&D subsidies to firms has produced mixed results so far. One possible explanation is that firms and project selection rules may be quite heterogeneous both across agencies and across industries, leading to different outcomes in terms of the induced additional private effort. Here we focus on the participation stage. Using a sample of Spanish firms, we test for differences across agencies and industries. Our results suggest that firms in the same industry face different hurdles to participate in different agencies’ programs, that participation patterns may reflect a combination of agency goals, and that patterns differ across high-tech and low-tech industries.

R&D and Productivity: Internal vs. External R&D: Evidence from West Germany Manufacturing Industries

Bonte, W.

The paper explores the productivity effects of investment in external (contract) vs. internal (in-house) R&D in a sample of West-German Manufacturing Industries. The results provide strong evidence of a positive relationship between productivity and the share of external R&D in total R&D. This result is robust to alternative econometric specifications. Thus, findings suggest that the decision between internal and external R&D does matter. Moreover, results imply a nonlinear relationship between productivity and the share of external R&D for higher-technology industries, hinting at decreasing productivity effects of an increasing share of external in total R&D.

Does Federally Financed Business R&D Matter for US Productivity Growth?

Bonte, W.

This paper investigates the impact of federally financed business R&D on productivity of the US nonfarm business sector. Results of a co-integration analysis suggest that a long run relation between productivity and total (privately and federally financed) R&D capital stock exists. Moreover, the estimation results do not confirm the finding of previous empirical studies that the productivity effects of federally financed business R&D are lower compared with those of privately financed business R&D.

Spillovers from Publicly Financed Business R&D: Some Empirical Evidence from Germany

Bonte, W.

This paper investigates the effects of interindustry R&D spillovers from publicly financed business R&D on private R&D efforts and productivity using data of West German manufacturing industries. The results suggest that it is important to distinguish between the effects of spillovers from privately and publicly financed business R&D. In particular, estimation results provide evidence of productivity-enhancing effects of spillovers from privately financed R&D while results are less clear-cut for publicly financed R&D. Moreover, there is some empirical evidence that private R&D efforts of higher-technology industries are stimulated by spillovers from privately financed R&D but not by spillovers from publicly financed R&D. However, public funding of R&D in higher-technology industries seems to induce private R&D investments within these industries.

Alternative Measures of the Marginal Cost of Funds

Browning, E., Gronberg, T. and Liu, L.

This article reconciles the use of two different marginal cost-of-funds (MCF) measures by resorting to alternative marginal benefit measures. It demonstrates how the alternative MCF measures can be properly applied to two classic problems in expenditure analysis: local cost-benefit project evaluation and the second-best public good level question. Relative strengths of the two MCF approaches in addressing the two problems are identified.

An Empirical Evaluation of The Effects of R&D Subsidies

Busom, I.

R&D subsidies are a common tool of technology policy, but little is known about the effects they have on the behaviour of firms. This paper presents evidence on the effects that R&D subsidies have on the R&D effort of recipients, and on the probability that a firm will participate in a program granting R&D subsidies. The empirical model consists of a system of equations: a participation equation; and an R&D effort equation. Endogeneity of public funding is controlled. Estimates are obtained with a cross-section sample of Spanish firms. The main findings are that: 1) small firms are more likely to obtain a subsidy than large firms, probably reflecting one of the public agency’s goals; 2) overall, public funding induces more private effort, but for some firms (30% of participants) full crowding out effects cannot be ruled out, and 3) firm size remains related to effort, whether or not a firm gets public funding.

Public Subsidies to Business R&D: Do they Stimulate Private Expenditures?

Callejon, M. and Garcia-Quevedo, J.

The purpose of this paper is to obtain new evidence about a fundamental question of empirical studies on technology policy. Is public R&D a complement to or a substitute for private R&D? We examine, at an industry level, the relationship between private R&D expenditures and public subsidies in Spain, using panel data and controlling the interindustry differences in technological opportunities. The results suggest that public subsidies have complemented private R&D. This is an interesting result because technology policy was reoriented in the 1990s with a reduction of direct government subsidies for R&D and an increase in tax incentives.

Assessing the R&D Determinants and Productivity of Worldwide Manufacturing Firms

Capron, H. and Cincera, M.

This paper analyzes the relationship between R&D activity, spillovers and productivity at the firm level. Particular attention is put on the formalization of technological spillovers. The analysis is based upon a new dataset composed of 625 worldwide R&D-intensive manufacturing firms whose information has been collected for the period 1987-1994. Given the panel data structure of the sample, ad hoc econometric techniques, which deal with both firms unobserved heterogeneity and weak exogeneity of the right hand-side variables, are implemented. The empirical results suggest that spillover effects influence significantly the firm’s productivity. Nevertheless, the effects differ substantially among the pillars of the Triad. The United States is mainly sensitive to its national stock of spillovers while Japan appears to draw from the international stock. On its side, Europe shows a tendency to internalize spillovers.

Links and Impacts: The Influence of Public Research on Industrial R&D

Cohen, W.M., Nelson, R.R. and Walsh, J.P.

In this paper, we use data from the Carnegie Mellon Survey on industrial R&D to evaluate for the U.S. manufacturing sector the influence of public (i.e., university and government R&D lab) research on industrial R&D, the role that public research plays in industrial R&D, and the pathways through which that effect is exercised. We find that public research is critical to industrial R&D in a small number of industries and importantly affects industrial R&D across much of the manufacturing sector. Contrary to the notion that university research largely generates new ideas for industrial R&D projects, the survey responses demonstrate that public research both suggests new R&D projects and contributes to the completion of existing projects in roughly equal measure overall. The results also indicate that the key channels through which university research impacts industrial R&D includes published papers and reports, public conferences and meetings, informal information exchange, and consulting. We also find that, after controlling for industry, the influence of public research on industrial R&D is disproportionately greater for larger firms as well as start-ups.

Tax incentives and R&D spending: A review of the evidence

Cordes, J.J.

Since 1981, U.S. firms have been allowed to claim a tax credit for R&D spending in excess of some base amount. This paper assesses the evidence gathered to date about the effectiveness of the R&D tax credit in the United States. There is considerable evidence that the R&D tax credit has had some effect on the behaviour of American firms in the early 1980s. But it is not as yet clear how much of the initial response of firms to the credit is due to increases in total R&D as opposed to increases in R&D that is qualified for the R&D credit. Moreover, different empirical approaches produce substantially different estimates of the size of the effect of the R&D credit. Analyses based on time series data imply that the credit has had a substantial effect on R&D spending. However, indirect evidence based on estimates of the price elasticity of demand for R&D, as well as studies based on more direct evidence from survey data and corporate tax returns imply that the effect of the credit has been rather modest. There are several ways in which these divergent estimates of the size of firms’ responses can be reconciled. However, each suggested reconciliation points toward using the more modest estimates to gauge the effects of a permanently enacted incentive for R&D. These estimates imply that had the incremental 25 percent R&D credit been made permanent, it would have stimulated between $0.35 and $0.93 of additional company-funded R&D spending per each $1 of tax revenue forgone.

Additionality of public R&D grants in a transition economy

Czarnitzki, D. and Licht, G.

This paper examines the input and output additionality of public R&D subsidies in Western and Eastern Germany. We estimate the impact of public R&D grants on firms’ R&D and innovation input. Based on the results of this first step we compare the impact of publicly funded private R&D on innovation output with the output effect of R&D funded out of firms’ own pockets. We employ micro-econometric evaluation methods using firm-level data derived from the Mannheim Innovation Panel. Our results point towards a large degree of additionality in public R&D grants with regard to innovation input measured as R&D expenditures and innovation expenditures, as well as with regard to innovation output measured by patent applications. Input additionality has been more pronounced in Eastern Germany during the transition period than in Western Germany. However, R&D productivity is still larger for the established Western German innovation system than for Eastern Germany. Hence, a regional redistribution of public R&D subsidies might improve the overall innovation output of the German economy.

A Framework for Evaluating Provincial R&D Tax Subsidies

Dahlby, B.

The spillover effects from a firm’s research and development (R&D) activities provide a rationale for R&D tax incentives. This paper provides a framework for incorporating the external rate of return on R&D, the tax sensitivity of R&D spending, and the government’s marginal cost of public funds in the evaluation of provincial R&D incentive programs. Using this framework, we find that an additional dollar of tax incentive has to generate close to $2.00 of additional R&D and the external rate of return has to be very close to 30 percent in order to justify a provincial tax subsidy for R&D if the provincial government’s marginal cost of funds is $1.40.

Strategic Policies and Growth: An Applied Model of R&D- Driven Endogenous Growth

Diao, X., Roe, T. and Yeldan, E.

We introduce and explore a general equilibrium model with R&D-driven endogenous growth, whose antecedents are the models of Romer (1990) ¹ and Grossman and Helpman (1991) ². Utilizing evidence from recent econometric studies on sources of growth, the model also accounts explicitly for cross-border technological spillovers. The model is specified and calibrated to data from Japan and is solved to obtain both the transitional and the steady-state equilibria. We explore the effects of selective trade and R&D promotion policies on long-run growth and social welfare. The model results suggest that while a strategic trade policy has little effect on re-allocating resources into domestic R&D activities, it can significantly affect the cross-border spillovers of technological knowledge, which, in turn, stimulates growth. We find that trade liberalization may cause the growth rate to fall and lead to a loss of social welfare in the long-run, although it improves welfare in the short-run. R&D promotion policies stimulate growth by inducing private agents to allocate more resources to domestic R&D, as well as to take greater advantage of global R&D spillovers. Here, we find significantly high growth effects together with sizable gains in social welfare at low incidence to taxpayers.

Institutional aspects of R&D tax incentives: the SR&ED tax credit

Doern, Bruce.

This paper provides an assessment of the institutional evolution of the federal SR&ED tax credit. It also develops an institutional frame for the examination of other government portfolios for other R&D tax incentives.

The New Incremental Tax Credit for R&D: Incentive or Disincentive?

Eisner, R., Albert, S.H. and Sullivan, M.A.

The new incremental tax credit for R&D has a limited potential for stimulating expenditures, and in some cases actually discourages them. The credit is pro-cyclical and sensitive to inflation. An initial surge in credit claims arises from shifts in the proportions of R& D deemed qualified rather than increases in total R&D. From 1983 to 1985 the credit is likely to cost over $1 billion annually, exceeding initial Treasury estimates. A number of modifications to the credit would increase its incentive effects; the most important of these would redesign the firm-specific, moving-average base so that increases in current expenditures would not reduce future credits.

Studying the Studies: An Overview of Recent Research into Taxation Operating Costs

Evans, C.

Studies into the operating costs of taxation compliance costs for taxpayers and administrative costs for revenue authorities have flourished in recent years. This paper provides an overview of these studies and reveals both the breadth and the depth of the research in this area. The paper focuses upon studies that have taken place in the last 20 years or so, although the paper also briefly considers the broader historical context, including the reasons why research into tax operating costs has apparently flourished after some initial neglect. A summary of most of the major (and some minor) administrative and compliance cost studies that have been published (and some that have not been published) since 1980 is contained in an appendix. This summary highlights the geographical spread of operating cost research, the variety of taxes and aspects of tax systems that have been studied, and the range of methodologies employed. The outcomes of the research are also summarised. A key thesis of the paper is that tax law design should not take place without clear recognition of the impact of the proposed changes on the operating costs of the tax system. Sensible tax law design must be informed by an understanding of the impact that design will have on the burden that taxpayers will face and the administrative costs that the revenue authority will be required to carry.

What Drives Business R&D Intensity Across OECD Countries

Falk, M.

This paper empirically investigates the potential determinants of business-sector R&D intensity using a panel of OECD (countries for the period of 1975‚ 2002 with data measured as five-year averages). Estimates using a system GMM estimator controlling for endogeneity show a high degree of persistence in business-sector R&D expenditures. Tax incentives for R&D have a significant and positive impact on business R&D spending regardless of the specification and estimation techniques. Furthermore, we find that expenditures for R&D performed by universities are significantly positively related to business enterprise sector expenditures on R&D indicating that public sector R&D and private R&D are complements. Direct R&D subsidies and the high-tech export share are significantly positively related to business-sector R&D intensity, but these effects are only significant using the first-differenced GMM estimator. The static fixed effects results show that countries characterised by strong patent rights appear to have higher R&D intensities, but this effect is no longer significant in the dynamic panel data model.

Total Factor Productivity, Technical Progress and Efficiency: A Comparative Study of 14 Belgian Industrial Sectors (With English summary)

Fecher, F. and Perelman, S.

The purpose of this study based on the econometric estimation of deterministic frontier production functions is to examine and to compare for the period 1977-1983, 14 sectors of the Belgian manufacturing industry from a sample of a thousand firms. We are especially interested in breaking down total factor productivity changes into technological progress and changes in technical efficiency, comparing efficiency levels in every sector, and in defining the impact of R-D spending on these performances.

Do Subsidies to R&D Actually Stimulate R&D Investment and cooperation?

Folster, S.

A popular view in the industrial policy debate is that cooperation between firms’ R&D departments should be encouraged. The European Community, Japan and the US all subsidize research cooperatives. This study presents the first empirical test of the effectiveness of such subsidies using a database of competitors in 45 technological races. The results indicate that subsidies that require cooperation in the form of result-sharing agreements significantly increase the likelihood of cooperation, but they decrease incentives to conduct R&D. Subsidy programmes, such as EUREKA, that require cooperation but do not require result-sharing agreements do not increase the likelihood of cooperation. They do, however, increase incentives to conduct R&D somewhat, to the same extent as subsidies that do not require cooperation.

Basic Research and International Spillovers

Funk, M.

This paper discriminates between basic and developmental research when estimating international research spillovers between nine OECD nations. Using panel co-integration techniques, the estimates show that basic research generates much larger international spillovers than developmental research. Developmental research in turn appears more easily appropriated by the research performer, and thus has a stronger effect domestically. These results suggest growth models should incorporate the firm’s choice between basic and developmental research. More importantly, since basic research receives a large proportion of its funding from public sources, the finding of large international spillovers from basic research suggests current public research policies should be re-evaluated. The results support the argument in favour of increased international coordination of basic research policies.

Do Public Subsidies Stimulate Private R&D Spending?

Gonzalez, X. and Pazo, C.

The objective of this paper is to contribute to the empirical literature that evaluates the effects of public R&D support on private R&D investment. We apply a matching approach to analyze the effects of public R&D support in Spanish manufacturing firms. We examine whether or not the effects are different depending on the size of the firm and the technological level of the sectors in which the firms operate. We evaluate the effect of R&D subsidies on the subsidized firms, considering both the effect of subsidies on firms that would have performed R&D in the absence of public support and also the effect of inducement to undertake R&D activities. We also analyze the effect that concession of subsidies might have on firms, which do not enjoy this type of support. The main conclusions indicate absence of ‚crowding-out‚, either full or partial, between public and private spending and that some firms, mainly small and operating in low technology sectors, might not have engaged in R&D activities in the absence of subsidies.

Investment Subsidies and Wages in Capital Goods Industries: To the Workers Go the Spoils?

Goolsbee, A.

This paper looks at the impact of investment tax subsidies on the labour market for capital goods workers. Using data during a decade with considerable variation in the tax cost of capital (1979-1988), the results show that tax subsidies to investment drive up capital goods workers‚ wages. A 10 percent investment tax credit, for example, raises the relative wages of such workers, on average, by 2.5 percent – 3.0 percent relative to comparable manufacturing workers in other sectors and more for certain types of workers. Rising wages make up an important part of the rising supply curve for capital goods and reflect imperfect short-run mobility of production workers across sectors.

R&D Capital, Rate of Return on R&D Investment and Spillover of R&D in Japanese Manufacturing Industries

Goto, A. and Suzuki, K.

The effect of R&D on productivity growth in Japanese manufacturing industries is examined. Using more accurate firm R&D expenditure data than widely used data based on financial statements, a series of R&D capital were constructed. Then, the rate of return on R&D investment was estimated. In addition, the impact of other industries; R&D on the productivity growth of an industry was also estimated. An attempt was made to determine the effect of electronics technology upon the productivity growth of other industries through the transaction of the intermediate electronics goods with improved quality, and through the diffusion of the new technological knowledge discovered.

Measuring the Cost-Effectiveness of an R&D Tax Credit for the UK

Griffith, R., Redding, S. and Van Reenen. J.

This paper investigates the economic impact of the government’s proposed new UK R&D tax credit. We measure the benefit of the credit by the effect on value added in the short and long runs. This is simulated from existing econometric estimates of the tax-price elasticity of research and development (R&D) and the effect of R&D on productivity. For the latter, we allow R&D to have an effect on technology transfer (catching up with the technological frontier) as well as innovation (pushing the frontier forward). We then compare the increase in value-added to the likely exchequer costs of the programme under a number of scenarios. In the long run, the increase in GDP far outweighs the costs of the tax credit. The short-run effect is far smaller, with value-added only exceeding cost if R&D grows at or below the rate of inflation.

Interindustry Technology Flows and Productivity Growth: A Re-examination

Griliches, Z. and Lichtenberg, F.

The relationship between productivity growth and R&D intensity is reexamined using detailed data for 193 U.S. manufacturing industries and a breakdown of R&D into own product and process improvement-oriented components and “imported” R&D from other industries. A significant interindustry relationship between total factor productivity growth and R&D intensity is reconfirmed, with “used” R&D having larger coefficients than own product R&D components. But “own” product R&D is also significant and the explanatory power of the “used” R&D variable derives largely from the own-process R&D component rather than the embodied component imported from other industries. Thus, the evidence for R&D spillovers remains tenuous.

The Impact of Public R&D Expenditure on Business R&D

Guellec, D. and Van Pottelsberghe, B.

This paper attempts to quantify the aggregate net effect of government funding on business R&D in 17 OECD Member countries over the past two decades. Grants, procurement, tax incentives and direct performance of research (in public laboratories or universities) are the major policy tools in the field. The major results of the study are the following: Direct government funding of R&D performed by firms has a positive effect on business financed R&D (except if the funding is targeted towards defence activities). Tax incentives have an immediate and positive effect on business-financed R&D; Direct funding as well as tax incentives are more effective when they are stable over time: firms do not invest in additional R&D if they are uncertain of the durability of the government support; Direct government funding and R&D tax incentives are substitutes: increased intensity of one reduces the effect of the other on business R&D; The stimulating effect of government funding varies with respect to its generosity: it increases up to a certain threshold (about 10% of business R&D) and then decreases beyond; Defence research performed in public laboratories and universities crowds out private R&D; Civilian public research is neutral for business R&D. * We thank the participants to various seminars, including the OECD Committee for Scientific and Technology Policy and the NBER 2000 Summer Institute on Productivity for helpful comments and suggestions. All opinions expressed in this article are those of the authors and do not reflect necessarily the views of the OECD or Universite Libre de Bruxelles.

From R&D to Productivity Growth: Do the Institutional Settings and the Source of Funds of R&D Matter?

Guellec, D. and Van Pottelsberghe, B.

This paper presents estimates of the long-term impact of various sources of knowledge (R&D performed by the business sector, the public sector and foreign firms) on multifactor productivity growth of 16 countries from 1980 to 1998. The main results show that the three sources of knowledge are significant determinants of long-term productivity growth. Further evidence suggests that several factors determine the extent to which each source of knowledge contributes to productivity growth. These factors are the absorptive capability, the origin of funding, the socioeconomic objectives of government support, and the type of public institutions that perform R&D.

L’Effet des Depenses en R&D sur la Productivite de Travail au Quebec

Hanel, P.

The R&D-Productivity relationship in Quebec’s manufacturing industries is examined in a framework of growth accounting pioneered by Grilliches, Scherer and Terleckyj. The indirect effects on productivity of R&D executed by upstream suppliers are calculated for 1971-1982 period. The labour productivity growth rates are closely correlated with the growth rate of direct and indirect R&D expenses and with the growth rate of capital labour substitution. The results suggest that the indirect R&D has a more important and statistically more significant effect on productivity growth than the direct R&D. Federal subsidies to R&D seem to have a negative rather than a positive effect on productivity growth.

R&D, Inter-industry and International Technology Spillovers and the Total Factor Productivity Growth of Manufacturing Industries in Canada 1974-1989

Hanel, P.

The paper presents new econometric evidence on the relationship between total factor productivity growth and the R&D expenditures of Canadian manufacturing industries in the presence of interindustry and international spillovers of technology. In contrast to studies that presume that international spillovers are incorporated in imports of intermediate and/or capital equipment goods, the present paper assumes that the principal channel of transmission of new technology is foreign direct investment. Three original proxies for international spillovers use information on patenting, the size and the origin of foreign ownership in the host country and the R&D expenditures in the country of origin. The results suggest that the nexus between industry’s own R&D expenditures and the TFP growth is significant and positive, especially for the process-related R&D. Domestic interindustry spillovers of new technology have a larger effect on TFP than the industry’s own R&D expenditures. All three proxies for international technology spillovers are associated positively and significantly with TFP growth. However, international spillovers contribute to TFP growth less than domestic interindustry spillovers and less than own process-related R&D.

R&D and Productivity in German Manufacturing Firms

Harhoff, D.

This paper uses a new firm panel data set to explore the relationship between R&D and productivity in German manufacturing firms for the period from 1979 to 1989. The results confirm the view that R&D is an important determinant of productivity growth. In the cross-section, the elasticity of sales with respect to R&D capital is on the order of 14 percent. Using fixed-effects estimators yields R&D elasticities of about 8 percent. Assuming different depreciation rates for R&D capital has virtually no effect on these results. Differencing estimates improve considerably when growth rates are computed over longer time periods, suggesting that the divergence between time-series and cross-sectional estimates is driven by random measurement errors. The paper also considers differences between high technology and other firms. Cross-section and panel elasticity estimates of the R&D effect diverge considerably for the two groups, while the corresponding rate of return estimators display far less variation. There is some evidence that the R&D elasticity increased during the early 1980s, and that it fell sharply back to its 1979 value during the period from 1985 to 1989.

Inward Investment and Technical Progress in the UK Manufacturing Sector

Hubert, F. and Pain, N.

This paper investigates the impact of direct investment by foreign-owned companies on technical progress and labour productivity in the UK manufacturing sector. Using an industry-level panel data set we find that foreign-owned firms have a significant positive effect on the level of technical efficiency in domestic firms. There is evidence of significant intra-industry and inter-industry spillovers from inward investment. These findings remain robust even when other factors such as imports and domestic R&D expenditures are allowed for. Inward investment appears to be a much more important source of technical progress than foreign trade.

Evaluating the Impacts of Subsidies on Innovation Activities in Germany

Hujer, R. and Radi, D.

Innovations are a key factor to ensure the competitiveness of establishments as well as to enhance the growth and wealth of nations. But more than any other economic activity, decisions about innovations are plagued by failures of the market mechanism. As a response, public instruments have been implemented to stimulate private innovation activities. The effectiveness of these measures, however, is ambiguous and calls for an empirical evaluation. In this paper, we make use of the IAB Establishment Panel and apply various microeconometric methods to estimate the effect of public measures on innovation activities of German establishments. We find that neglecting sample selection due to observable as well as to unobservable characteristics leads to an overestimation of the treatment effect and that there are considerable differences with regard to size class and between West and East German establishments.

Demand and Supply Influences in R&D Intensity and Productivity Growth

Jaffe, A.B.

The effects of technological opportunity, market demand and R&D spillovers on R&D intensity and productivity growth are quantified. It is shown that all three factors have significant effects on R&D demand; with respect to productivity growth, it is not possible to distinguish demand and technological opportunity effects, but spillovers are important.

Reinventing Public R&D: Patent Policy and the Commercialization of National Laboratory Technologies

Jaffe, A.B. and Lerner, J.

Despite their magnitude and potential impact, federal R&D expenditures outside of research universities have attracted little economic scrutiny. We examine the initiatives since 1980 to encourage patenting and technology transfer at the national laboratories. Both field and empirical research challenges the conventional picture of bleak failure. The policy changes had a substantial impact on the laboratories’ patenting: they have gradually reached parity in patents per R&D dollar with research universities. Unlike universities, laboratory patent quality has remained constant or even increased despite this growth. Success is associated with avoiding technological diversification and with having a university as lab manager.

A Cross-National Comparison of R&D Expenditure Decisions: Tax Incentives and Financial Constraints

Klassen, K.J.,Pittman, J.A. and Margaret, P.

We provide evidence on the impact of tax incentives and financial constraints on corporate R&D expenditure decisions. We contribute to extant research by comparing R&D expenditures in the United States and Canada, thereby exploiting the differences in the two countries’ R&D tax credit mechanisms and generally accepted accounting principles. The two tax incentive mechanism designs are consistent with differing views of the degree of financial constraints faced by firms in these economies. Our sample also allows us to explore the effects of capitalizing R&D on Canadian firms. Employing a matched design, we document relations between tax credit incentives and R&D spending consistent with both Canadian and U.S. public companies responding as though they are not financially constrained. We estimate that the Canadian credit system induces, on average, $1.30 of additional R&D spending per dollar of taxes forgone while the U.S. system induces, on average, $2.96 of additional spending. We also find that firms that capitalize R&D costs in Canada spend, on average, 18 percent more on R&D. Collectively, this evidence is important to the ongoing debates in both countries concerning the appropriate design of incentives for R&D and is consistent with the assumptions found in the U.S. tax credit system, but not those found in the Canadian system.

R&D, Scope Economies and Plant Performance

Klette, T.J.

This article presents an alternative specification of knowledge production and derives a structural econometric model with some desirable properties. I provide a simple and less data-intensive framework for empirical studies of the relationship between firm performance and R&D. The main empirical findings are as follows: (i) R&D has a positive effect on performance, (ii) the appropriable part of knowledge capital depreciates at a rate of .2, (iii) there are significant spillover effects of R&D across lines of business within a firm, and (iv) there are significant spillovers in R&D across firms that belong to the same interlocking group of firms.

Do Subsidies to Commercial R&D Reduce Market Failures? Microeconometric Evaluation Studies

Klette, T.J., Moen, J. and Griliches, Z.

A number of market failures have been associated with R&D investments and significant amounts of public money have been spent on programs to stimulate innovative activities. In this paper, we review some recent microeconometric studies evaluating the effects of government-sponsored commercial R&D. We pay particular attention to the conceptual problems involved. Neither the firms receiving support, nor those not applying, constitute random samples. Furthermore, those not receiving support may be affected by the programs due to spillover effects which often are the main justification for R&D subsidies. Constructing a valid control group under these circumstances is challenging, and we relate our discussion to recent advances in econometric methods for evaluation studies based on non-experimental data. We also discuss some analytical questions, beyond these estimation problems, that need to be addressed in order to assess whether R&D support schemes can be justified. For instance, what are the implications of firms’ R&D investments being complementary to each other, and to what extent are potential R&D spillovers internalized in the market?

Accumulation of R&D Capital and Dynamic Firm Performance: A Not-so-Fixed Effect Model

Klette, T.J. and Johansen, F.

Considering the observed patterns of R&D investment, we argue that a model that allows for positive feedback from already acquired knowledge to the productiveness of current research fits the empirical evidence better than the standard model that treats knowledge accumulation symmetrically with the accumulation of physical capital. We present an econometric framework consistent with positive feedback in the accumulation of R&D capital. The empirical model is econometrically simple and less data demanding than the standard framework. Our estimates show a significant positive effect of R&D on performance and a positive feedback effect from the stock of knowledge capital. We calculate the depreciation rate and the rate of return to knowledge capital for our alternative framework, and compare our estimated rates of return to results obtained within the standard framework.

R&D Subsidy and Self-Financed R&D: The Case of Japanese High-Technology Start-Ups

Koga, T.

This paper examines whether public R&D subsidies constitute a substitute or complement for private-financed R&D. The empirical analysis is based on a panel data of 223 Japanese high-technology start-ups. Our evidence is consistent with the complement hypothesis, i.e. that publicly funded R&D does promote private R&D. The complement effects are stronger for more mature firms. This is because such firms, in the growth phase, might have greater demands for R&D funds.

Patents and R&D: An Econometric Investigation Using Applications for German, European and US Patents by German Companies

Licht, G. and Zoz, K.

Based on the data of the first wave of the Mannheim Innovation panel, this paper explores the link between R&D expenditures and patents. Our data allow a detailed analysis of the firm size distribution of R&D and patent applications at different patent offices. It is shown that the share of firms performing R&D increases with firm size. The share of firms applying for patents shows an even steeper increase with firm size. Moreover, large firms are more likely to apply for patents in more than one country. The home patent office appears especially important for small firms. Using various count data models, the paper explores the relationship between R&D and patents at the firm level. We carefully test several distributional assumptions for count data models. A negative binomial hurdle model seems to be the most appropriate count data model for our data as the decision to patent inventions and the productivity of R&D are ruled by different mechanisms. Our estimates point towards significant returns to scale of R&D. Furthermore, the empirical results can be interpreted towards minor and insignificant spillover effects. Even after controlling for a variety of firm characteristics, firm size exhibits a large effect on the propensity to patent.

An Analysis of Policy Initiatives to Promote Strategic Research Partnerships

Link, A.N., Paton, D. and Siegel, D.S.

The paper presents new econometric evidence on the relationship between total factor productivity growth and the R&D expenditures of Canadian manufacturing industries in the presence of interindustry and international spillovers of technology. In contrast to studies that presume that international spillovers are incorporated in imports of intermediate and/or capital equipment goods, the present paper assumes that the principal channel of transmission of new technology is foreign direct investment. Three original proxies for international spillovers use information on patenting, the size and the origin of foreign ownership in the host country and the R&D expenditures in the country of origin. The results suggest that the nexus between industry’s own R&D expenditures and the TFP growth is significant and positive, especially for the process-related R&D. Domestic interindustry spillovers of new technology have a larger effect on TFP than industry’s own R&D expenditures. All three proxies for international technology spillovers are associated positively and significantly with TFP growth. However, international spillovers contribute to TFP growth less than domestic interindustry spillovers and less than own process-related R&D.

An econometric analysis of trends in research joint venture activity

Link, A.N., Paton, D. and Siegel, D.S.

Edith Penrose noted that firms may need to rely on research joint ventures (RJVs) to acquire access to resources that can help them achieve and sustain a competitive advantage. We estimate an econometric model of the propensity of firms to disclose their intention to engage in RJVs, in order to explain the recent precipitous decline in RJVs filed with the US Department of Justice. We find that RJV activity is inversely related to the competitive position of US firms in global high-technology industries and that the establishment of the US Commerce Department’s Advanced Technology Program (ATP) induced a structural change in the propensity of firms to engage in RJVs. Thus, two factors may explain the recent downturn in RJVs: a substantial improvement in US global performance in high-technology markets and a sharp decline in ATP funding.

R&D spillovers and productivity: Evidence from U.S. manufacturing microdata

Los, B. and Verspagen, B.

This paper deals with the estimation of the impact of technology spillovers on productivity at the firm level. Panel data for American manufacturing firms on sales, physical capital inputs, employment and R&D investments are linked to R&D data by industry. The latter data are used to construct four different sets of ‘indirect’ R&D stocks, representing technology obtained through spillovers. The differences between two distinct kinds of spillovers are stressed. Co-integration analysis is introduced into production function estimation. Spillovers are found to have significant positive effects on productivity, although their magnitudes differ between high-tech, medium-tech and low-tech firms.

Are International R&D Spillovers Costly for the United States?

Luintel, K.B. and Khan, M.

Coe and Helpman, among others, report positive and equivalent R&D spillovers across groups of countries. However, the nature of their econometric tests does not address the heterogeneity of knowledge diffusion across countries. We empirically examine these issues in a sample of 10 OECD countries by extending both the time span and the coverage of R&D activities in the data set. We find that the elasticity of total factor productivity with respect to domestic and foreign R&D stocks is extremely heterogeneous across countries and that data cannot be pooled. Thus, panel estimates conceal important cross-country differences. The United States appears to be a net loser in international R&D spillovers. Our interpretation is that when competitors catch up techno-logically, they challenge U.S. market shares and investments worldwide. This has implications for U.S. productivity.

Returns to American Agricultural Research: Results from a Co-integration Model

Makki, S.S., Thraen, C.S. and Tweeten, L.G.

This study examines the returns to U.S. agricultural research investments for the years 1930 through 1990 using a co-integration model. Time series data on agricultural productivity, public and private research investments, farmers’ education, terms of trade, and commodity programs were found to be non-stationary and co-integrated. The estimated internal rates of return are 27 percent for public research and 6 percent for private research. These estimates from the most comprehensive and timely data assembled to date indicate that returns to public agricultural research compare favourably to real returns on alternative long-run investments, but do not call for large increases in investments suggested by previous studies or for the drop in public research expenditures appropriated by the U.S. Congress in recent years.

How Effective are Canada’s Direct Tax Incentives for R and D?

Mansfield, E. and Switzer, L.

This study seems to be one of the first attempts to estimate the effects of Canada’s R and D tax credits and allowances on company-funded research and development. The results (based on a carefully selected survey of firms carrying out R and D in Canada, an econometric study of Canadian industrial R and D data, and other calculations involving the price elasticity of demand for R and D) indicate that these effects have been modest. The special research allowance seems to have increased R and D expenditures by about 1 percent, and the investment tax credit seems to have increased them by about 2 percent. These increases amounted to about 30 or 40 percent of the revenue losses to the government.

The effects of R&D tax credits and allowances in Canada

Mansfield, E. and Switzer, L.

In Canada, as in many other countries that have adopted R&D tax credits and allowances, there has been considerable controversy over their effectiveness in increasing company-financed research and development. This study seems to be one of the first systematic attempts to estimate the effects of Canada’s R&D tax credits and allowances. The results present a very consistent picture. The survey results, the econometric results, and some simple calculations based on rough measures of the price elasticity of demand for R&D all suggest that the special research allowance increased R&D expenditures by about 1 percent and that the investment tax credit increased them by about 2 percent. These increases seem to be appreciably less than the revenue losses to the government.

Estimating the impact of the R&D tax credit on strategic groups in the pharmaceutical industry

McCutchen, W.W.

The Economic Recovery and Tax Act of 1981 provided a 25 percent tax credit for increases in research and experimentation expenditures. Previous studies have shown considerable controversy about the effectiveness of various tax credits. This study focuses on the response of the strategic groups in the pharmaceutical industry to the credit. Four strategic groups were formed using different levels of research intensity (research/sales) and relative cash flow margin (cash flow/sales). The change in research intensity following enactment of the tax credit was estimated. The analysis found that the tax credit caused an increase in R&D expenditures. In addition, the R&D tax credit appears to have contributed to increased competitive R&D spending among the firms in the pharmaceutical industry.

Tax Subsidies for R&D in Canadian Provinces

McKenzie, K.J.

This paper documents the variation in effective tax rates for R&D in Canada’s ten provinces. It is shown that while a sizable tax subsidy for R&D exists in every province, the variation across provinces is significant, ranging from an effective subsidy rate of about 40 percent in Alberta to over 200 percent in Quebec.

Assessing the returns to collaborative research: Firm-level evidence from Italy

Medda, G., Piga, C. and Siegel, D.S.

We use firm-level data from Italian manufacturing firms to assess the relationship between various types of R&D and total factor productivity growth, including collaborative research with other firms and universities. A novel twist to our empirical analysis is that we estimate a sample selection model, which allows us to treat the decision to conduct R&D as endogenous. We find strong evidence of positive returns to collaborative research with other companies, whereas collaborative research with universities does not appear to enhance productivity. This result implies that firms may conduct R&D with universities when appropriability conditions are weak and the outcomes of such research projects do not yield direct strategic benefits.

R&D, R&D spillovers and payments for technology: Canadian evidence

Mohnen, P. and L’épine, N.

This paper pursues two objectives. The first one is to examine the interplay between R&D and foreign technology payments as two sources of technological knowledge on Canadian data. The second is to re-examine the issue of R&D spillovers in Canada by using patents as carriers of interindustry R&D externalities. The analysis is framed in a temporary equilibrium model, where the technology is represented by a translog variable cost function. The R&D stock of knowledge and the physical capital stock are considered as fixed inputs. Payments for technology are treated as a variable input, just as labour and intermediate inputs. The R&D spillover operates as a shift variable. The latter is constructed using a Canadian patent-based technology-flow matrix. The model is estimated on the panel data of 12 R&D-intensive Canadian manufacturing industries for the years 1975,1977, 1979, 1981, 1982 and 1983. The main findings of this paper are: (i) the complementarity of R&D and payments for technology; and (ii) the substantial inter-industry variability of R&D spillovers, an average excess of private over the social rate of return on R&D of 50%, and the detection of key R&D externalities emitting sectors.

Assessing spillovers from universities to firms: evidence from French firm-level data

Monjon S., Waelbroeck P.

We assess the importance of information flows from universities to innovative firms and determine the relative contribution of formal collaboration and pure knowledge spillovers in this process. We find that spillovers provide the most benefit to firms that imitate existing technologies or those that are involved in incremental innovation. On the other hand, highly innovative firms appear to derive most benefit from collaborative research with foreign universities. Indeed, highly innovative firms are at the frontier of the academic knowledge in their industry. Therefore, they only marginally benefit from aggregate (or industry-wide) spillovers. They require new forms of academic knowledge that they acquire through formal cooperation with foreign universities.

Measuring Total Factor Productivity, Technical Change and the Rate of Returns to Research and Development

Nguyen, S.V. and Kokkelenberg, E.C.

This paper examines the relationship between research and development expenditures and total factor productivity using establishment level (or micro) data. The confidential data are taken from the U.S. Bureau of the Census Annual Survey of Manufacturers and other Census surveys. Several measures of total factor productivity are considered as are several variables that proxy for technical knowledge. The latter include research and development expenditures by the firm, the accumulated research expenditures of the industry, and new equipment purchases. We find that there is a statistically significant relationship among above measures of technical expertise and a broad measure of total factor productivity.

Research Activity, Output Growth, and Productivity Increase in Japanese Manufacturing Industries

Odagiri, H.

The contribution of R&D expenditures to the productivity increase in Japanese manufacturing industries is investigated. With a popular single-equation approach, this contribution was found to be not only significant in all of the three periods, (1960-1966, 1966-1973 and 1973-1977), but also to exceed that estimated for the United States. However, when a simultaneous-equations approach was used to allow for an interaction between the learning effect (output growth-enhancing productivity increase through the accumulation of experience) and the price effect (productivity increase stimulating output growth through a declining price), the results suggested not only the importance of these two effects but also the over-evaluation of the contribution of R&D in the usual ordinary least-squares estimation.

Private and quasi-social rates of return on pharmaceutical R&D in Japan

Odagiri, H. and Murakami, N.

This paper calculates the rates of return (ROR) on R&D in the pharmaceutical industry in Japan by estimating the R&D function and the return function, where the former refers to the link between R&D expenditures and new drug development and the latter to the link between new drug development and profits. Since the ROR estimated with industry data must include the effect of technological spillover to other firms and the contribution to industrial profits through generic production, it is interpreted as quasi-social ROR (quasi because consumers’ surplus is not taken into account), while the ROR estimated with company data does not include these effects and are interpreted as the private ROR. Our finding clearly indicates that the quasi-social ROR (about 33 percent) exceeds the private ROR (about 19 percent) suggesting the presence of both spillover and generic effects.

Is Private R&D Spending Sensitive to its Price? Empirical Evidence on Panel Data for Italy

Parisi, M.L. and Sembellini, A.

In this paper, empirical evidence is presented on the elasticity of private R&D spending on its price. A censored panel-data regression model with random effects is applied to a balanced panel of 726 Italian firms over the 1992‚ 1997 period. Implied estimates point out that Italian firms’ response to policy measures (including tax credits), aimed at reducing the user cost of R&D capital, is likely to be substantial (1.50‚ 1.77). Furthermore, we also find that the elasticity of R&D spending is higher in recession (2.01) than in expansion (0.87).

International and Intersectoral R&D Spillovers in the OECD and East Asian Economies

Park, J.

This study empirically explores international and intersectoral R&D spillover effects on the total factor productivity growth of manufacturing and nonmanufacturing sectors based on a pooled time-series data set of 14 OECD economies and 3 East Asian economies; Korea, Singapore, and Taiwan. The study finds that foreign manufacturing R&D has strong influence on domestic productivity growths of both sectors and that domestic manufacturing R&D has a substantial intersectoral R&D spillover effect on domestic nonmanufacturing productivity growth. The social rates of return to manufacturing R&D are estimated to be two to six times greater than the private rates of return.

International R&D Spillovers and OECD Economic Growth

Park, W.G.

This paper quantifies the cross-national spillover effects of government and private investment in research and development (ROD), using a panel data set of ten OECD countries. The results show that domestic private research is a significant determinant of both domestic and foreign productivity growth, and that foreign government research stimulates domestic private research. These findings are significant in that they provide empirical support for arguments in favour of international economic policy coordination, particularly in the area of international science and technology.

Defence Innovation Stock and Total Factor Productivity

Poole, E. and Bernard, J.T.

This study explores the impact of defence industrial production on the productivity of four Canadian three-digit SIC industries. A Tornqvist index of the annual change of total factor productivity is calculated. A defence production `innovation stock’ is constructed from new data on defence industrial production in Canada between 1961 and 1985. SURE multiple regression analysis shows that military production has a negative impact on total factor productivity for the four industries.

Evaluating the Impact of Public Support on Commercial Research and Development Projects: Are Verbal Reports of Additionality Reliable?

Rye, M.

Additionality is a recurring issue when evaluating the impact of public support for research and development (R&D). To what degree does public support spur additional R&D efforts and output? This article discusses the additionality concept and its measurement. Verbal reports from recipients of public support are a widely used method for measuring the additionality of ongoing R&D programmes. However, it is often argued that these reports cannot be trusted since the recipients might have an incentive to answer strategically to maintain funding. Based on the verbal reports of project additionality in Norwegian evaluations over the last two decades, involving 2624 observations, higher additionality is reported in projects further from the market involving higher risks and uncertainty than in projects closer to market launch. This is in line with a priori expectations. It will be argued that the problem of strategic answering might be over-rated, and that verbal reports can provide important evidence. This is exemplified by results from verbal reports of additionality obtained by interviewing the customers of 21 different Norwegian research institutes.1 They show that public support is more important for the realization of projects within small- and medium-sized enterprises than with larger firms.

The Impact of Procurement-Driven Technological Change on U.S. Manufacturing Productivity Growth

Saal, D.S.

As we enter the 21st Century, technologies originally developed for defense purposes such as computers and satellite communications appear to have become a driving force behind economic growth in the United States. Paradoxically, almost all previous econometric models suggest that the largely defense-oriented federal industrial R&D funding that helped create these technologies had no discernible effect on U.S. industrial productivity growth. This paper addresses this paradox by stressing that defense procurement as well as federal R&D expenditures were targeted to a few narrowly defined manufacturing sub-sectors that produced high tech weaponry. Analysis employing data from the NBER Manufacturing Productivity Database and the BEA’s Input-Output tables then demonstrates that defense procurement policies did have significant effects on the productivity performance of disaggregated manufacturing industries because of a process of procurement-driven technological change.

Impact of R&D and Technology Diffusion on Productivity Growth: Empirical Evidence for 10 OECD Countries

Sakurai, N., Papaconstantinou, G. and Ioannidis, E.

This paper examines the empirical evidence on the impact of performed R&D and of R&D embodied in intermediate and capital goods on productivity performance in 10 major OECD countries over the last two decades. To quantify intersectoral and international technology flows, industry-level embodied R&D variables were constructed from an input-output (IO) R&D embodiment model. The productivity variables used are discrete Divisia growth indexes of total factor productivity (TFP), which were estimated from an IO growth accounting model. The results from pooled regressions indicate that the rates of return of the R&D variables were positively significant and increasing in the 1980s. In particular, embodied R&D is an important source for TFP growth in services, indicating very high social returns of the flows of capital-embodied technology into this sector. Moreover, the information and communication technology (ICT) cluster of industries played a major role in the generation and acquisition of new technologies at the international level.

The economic benefits of publicly funded basic research: a critical review

Salter, A.J. and Martin, B.R.

This article critically reviews the literature on the economic benefits of publicly funded basic research. In that literature, three main methodological approaches have been adopted; econometric studies, surveys and case studies. Econometric studies are subject to certain methodological limitations but they suggest that the economic benefits are very substantial. These studies have also highlighted the importance of spillovers and the existence of localisation effects in research. From the literature based on surveys and on case studies, it is clear that the benefits from public investment in basic research can take a variety of forms. We classify these into six main categories, reviewing the evidence on the nature and extent of each type. The relative importance of these different forms of benefit apparently varies with the scientific field, technology and industrial sector. Consequently, no simple model of the economic benefits of basic research is possible. We reconsider the rationale for government funding of basic research, arguing that the traditional “market failure” justification needs to be extended to take account of these different forms of benefit from basic research. The article concludes by identifying some of the policy implications that follow from this review.

The Welfare Analysis of Product Innovations, with an Application to Computed Tomography Scanners

Trajtenberg, M.

The main goal of this paper is to put forward a methodology for the measurement of product innovations using a value metric, that is, equating the “magnitude” of innovations with the welfare gains they generate. This research design is applied to the case of computed tomography scanners, a revolutionary innovation in medical technology. The econometric procedure centres on the estimation of a discrete choice model (the nested multinominal logit), which yields the parameters of a utility function defined over the changing quality dimensions of the innovative product. The estimated flow of social gains from innovation is used to compute a social rate of return to R&D, to explore the interrelation between innovation and diffusion, and to trace the time profile of benefits and costs, the latter suggesting the possible occurrence of “technological cycles.”

The Welfare Analysis of Product Innovations, with an Application to Computed Tomography Scanners

Trajtenberg, M.

University science parks are alleged to stimulate technological spillovers. However, there is virtually no empirical evidence on the impact of these facilities on research productivity. We begin to fill this gap by examining whether companies located on university science parks in the United Kingdom have higher research productivity than observationally equivalent firms not located on a university science park. The preliminary results appear to be consistent with this hypothesis and are robust to the use of alternative econometric procedures to assess relative productivity.

R&D, Public Innovation Policy, And Productivity: The Case Of Danish Manufacturing

Sorensen A., Kongsted H.C., Marcusson, M.

The purpose of this paper is to investigate the relationship between private R&D, public innovation support transferred to the private sector, and productivity in Danish manufacturing. Two main conclusions are established. First, public innovation support has a positive and significant effect on private R&D expenditures with an estimated elasticity of 0.062. Second, the indirect effect on productivity from public innovation support is reflected in a positive point estimate which is found to be robust to different specifications of R&D capital.

How Relevant is University-Based Scientific Research to Private High Technology Firms? A U.S.-Japan Comparison

Spencer J.W.

This cross-national study explores the relative contributions of academic and corporate research to subsequent industrial R&D activities within one industry. Japanese university research emerged as less influential than Japanese corporate research. The difference between the relevance of U.S. university and U.S. corporate research was only marginally significant. In both countries, university research appeared to contribute most to domestic firms. These findings accentuate the role that national institutional structures play in influencing a country’s university research activity.

R&D spillovers and technology transfer among and within vertical keiretsu groups: Evidence from the Japanese electrical machinery industry

Suzuki K.

Using a dynamic factor demand model with R&D externalities, we analyze the effects of technological diffusion among and within vertical keiretsu groups in the Japanese electrical machinery industry. We find that technology transfer from a core firm to its subcontracting firms is substantial. We also find positive R&D spillovers, which stem from the R&D activities of other keiretsu groups. Particularly remarkable are the spillovers between core firms of competing keiretsu groups.

Some tests of the incentive effects of the research and experimentation tax credit

Swenson C.W.

The effectiveness of the tax credit for research and experimentation (R&E) expenditures is examined using a panel of firm data for the period 1975 through 1988. Using a structural model, the results generally indicate that the credit resulted in increased R&E spending. However, the effect of the credit was substantially mitigated by the impacts of net operating loss carryovers and low growth opportunities. Results also indicate some degree of decreased R&E spending as a result of debt restructuring activity. Tax policy implications are discussed.

Knowledge Spillovers and High-technology Clustering: Evidence from Taiwan’s Hsinchu Science-Based Industrial Park

Tsai D.H.

Knowledge spillovers of high-technology industries are alleged to be important determinants of industrial clustering. Dynamic production modelling is applied to measure the sectoral and spatial spillover effects to study the implications of various types of knowledge spillovers on high-technology industry clustering in Taiwan’s Hsinchu Science-based Industrial Park (HSIP). The analysis is performed using the Taiwanese government’s industrial census of technological activities at the micro-level with 2340 plants for the period 1986-1995. We find substantive sectoral and spatial knowledge spillover effects, which are considered to be major motivating forces for regional concentration patterns of Taiwan’s high-technology industries.

International R&D Spillovers: A Comment

Van Pottelsberghe B., Lichtenberg, F.R.

Previous studies have found that importing goods from R&D-intensive countries raises a country’s productivity. In this paper, we investigate econometrically whether foreign direct investment (FDI) also transfers technology across borders. The data indicates that FDI transfers technology, but only in one direction: a country’s productivity is increased if it invests in R&D-intensive foreign countries‚ particularly in recent years‚ but not if foreign R&D-intensive countries invest in it. Other findings of the paper are that the ratio of foreign-R&D benefits conveyed by outward FDI to foreign R&D benefits conveyed by imports is higher for large countries than it is for small ones, that failure to account for international R&D spillovers leads to upwardly biased estimates of the output elasticity of the domestic R&D capital stock, and that there are much larger transfers of technology from the United States to Japan than there are from Japan to the United States.

Spillover effects, linkage structure, and research and development

Wolff E.N., Ishaq Nadiri M

We use US input-output data for the 1947-1977 period to analyse the relations among research and development (R&D), technical change, and intersectoral linkages. Our most novel finding is that among manufacturing industries, an industry’s rate of technological progress is positively and significantly related to that of its supplying sectors. Another new finding is that among all sectors of the economy, a sector’s R&D intensity and rate of technological progress positively affect its degree of linkage with other sectors. We also find significant spillovers from R&D embodied in new investments.

Capital Goods Trade and R&D Spillovers in the OECD

Xu B., Wang J.

In this paper, the significance of capital goods trade as conduit for R&D spillovers is investigated and the impact of international R&D spillovers on OECD countries is quantitatively assessed. Capital goods trade is tested against non-capital goods trade, and knowledge embodied in trade flows is evaluated vis-à-vis R&D spillovers in disembodied form. Our estimation indicates that about half of the return on R&D investment in a G7 country spilled over to other OECD countries. Trade in capital goods was found to be a significant channel of R&D spillovers, although the majority of the R&D spillovers in the OECD were transmitted through other channels.

A computational analysis of R&D support programs.

Garza, D., Giat, Y., Hackman, S. T. and Peled, D.

This paper compares two common government R&D support programs, R&D tax credits and direct R&D grants. To study their effectiveness and the extent to which their design matters, we analyze these programs within a dynamic equilibrium model of imperfectly competitive industries. Adopting comprehensive welfare measures that take into account government, producer and consumer surpluses, we find that both schemes exhibit positive social returns. Mid-range R&D-intensive sectors exhibit higher social returns than either high or low R&D-intensive sectors. Both incentive schemes generate positive measures of R&D input additionality of magnitudes consistent with empirical R&D research. However, R&D grants that require firms to allocate subsidy funds to R&D spur less R&D than a more flexible R&D tax credit. Subsidy schemes can even induce competing firms to over-spend on R&D, generating negative producer surplus and possibly negative social returns.

Economic efficiency of federal provision of scientific information and support for science research in Canada

Davies, J. B., and Slivinski, A.

We compare two common government R&D support programs, R&D tax credits and direct R&D grants. To study their effectiveness and the extent to which their design matters, we analyze these programs within a dynamic equilibrium model of imperfectly competitive industries. Adopting comprehensive welfare measures that take into account government, producer and consumer surpluses, we find that both schemes exhibit positive social returns. Mid-range R&D-intensive sectors exhibit higher social returns than either high or low R&D-intensive sectors. Both incentive schemes generate positive measures of R&D input additionality of magnitudes consistent with empirical R&D research. However, R&D grants that require firms to allocate subsidy funds to R&D spur less R&D than a more flexible R&D tax credit. Subsidy schemes can even induce competing firms to over-spend on R&D, generating negative producer surplus and possibly negative social returns.

Benefit-cost analysis of R&D support programs

Lester, J.

Federal provision of scientific information and support for science research has declined significantly in recent years, and a trend away from pure research toward applied, and commercial research has begun. This commentary asks whether those and other trends in this area can be justified in terms of economic efficiency. It is argued that the marginal benefits of scientific information and research have likely risen relative to production costs and the marginal cost of public funds has fallen, implying that reduced provision cannot be justified on efficiency grounds. An efficiency rationale for increased support for research that could be commercialized is also lacking. Longer-term trends include the rise of open data, which does make sense, and a relative shift from intramural government research and development toward university-based R&D. The latter shift likely responds to underlying economic factors but does not warrant a sudden sharp reduction in government research, such as seen recently in Canada.

R&D subsidies and the performance of high-tech start-ups

Colombo, M.G., Grilli, L., and Murtinu, S.

The benefit-cost approach used in this article calculates the impact of R&D subsidies on real income taking into consideration the benefit created by knowledge spillovers from the induced R&D, the cost of financing the subsidies with taxes that unavoidably harm economic performance, the cost of shifting resources from their market-determined uses, and administration and compliance costs. The SR&ED credit has two components: a regular 20 percent credit and an enhanced 35 percent refundable credit for smaller Canadian-controlled firms. The regular credit generates a net economic benefit, but the enhanced credit fails a benefit-cost test, owing to higher compliance costs and a higher subsidy rate. IRAP also fails a benefit-cost test, despite the assumption that IRAP-funded R&D generates higher spillovers than R&D funded by the tax credit, owing to the high cost of administering and complying with the program.

Evaluating the impact of R&D tax credits on innovation: A microeconometric study on Canadian firms

Czarnitzki, D., Hanel, P., and Rosa, J. M.

This study examines the effect of R&D tax credits on innovation activities of Canadian manufacturing firms. Over the 1997–1999 period the Federal and Provincial R&D tax credit programs were used by more than one third of all manufacturing firms and by close to two thirds of firms in high-technology sectors. We investigate the average effect of R&D tax credits on a series of innovation indicators such as number of new products, sales with new products, originality of innovation, etc. using a non-parametric matching approach. Compared to a hypothetical situation in the absence of R&D tax credits, recipients of tax credits show significantly better scores on most but not all performance indicators. We, therefore, conclude that tax credits lead to additional innovation output.

Effectiveness of R&D tax incentives in small and large enterprises in Quebec

Baghana, R., and Mohnen, P

In this paper we evaluate the effectiveness of R&D tax incentives in Quebec, using manufacturing firm data from 1997 to 2003 originating from R&D surveys, annual surveys of manufactures and administrative data. The estimated price elasticity of R&D is –0.10 in the short run and –0.14 in the long run, with slightly higher elasticities for small firms than for large firms. We show that there is a deadweight loss associated with level-based R&D tax incentives that is particularly acute for large firms. For small firms, it is not sizeable enough to suppress the R&D additionality, at least not for quite a number of years after the initial tax change. Incremental R&D tax credits do not suffer from this deadweight loss and are from that perspective preferable to level-based tax incentives.

Canadian science, technology and innovation policy: The product of regional networking?

Salazar, M., and Holbrook, A

The structure of federal countries poses challenges to science, technology and innovation (STI) policy-making and regional development not found in centrally governed nations. This paper tests the thesis that Canadian STI policy is highly regionalized in practice because of its networked structure, despite most of the funding coming from the federal government, which formulates most STI policies and programmes. Many of Canada’s STI programmes promote the creation of networks. These networks are part of the federal emphasis given to provincial/regional economic development and more recently to industrial cluster promotion.

Tax subsidies for R&D in Canadian Provinces

McKenzie, K. J.

Benchmarks, yardsticks and new places to look for industrial innovation and growth

Lipsett, M. S. and Lipsey, R.G.

This paper presents new figures and proposes new metrics for industrial innovation in Canada. Two sources of new information are cited: Canadian taxation statistics; and a demographics research database that is currently under development. Although the figures are local to Canada, the approach is likely to apply internationally.

R&D Tax Incentive Comparisons: Canadian and US Large Manufacturing Industries

Iqbal, M.

The study analyzes the tax-related benefits of research and development (R&D) for the petrochemical, telecommunications, steel, and news print industries in selected Canadian and US jurisdictions using a cash flow model. The findings show that Canadian R&D performers generally receive greater tax benefits than their counterparts in the United States, although the overall corporate tax burden is marginally higher in Canada. Such benefits are especially pronounced for Quebec and Ontario owing to the provision of a wage tax credit in Quebec and a super allowance in Ontario.

The Goals of R&D in the 1970s

Freeman, C., Oldham, C.H.G., Cooper, C.M., Sinclair, T.C. and Achilladelis, B.G.

This report was originally prepared for the Meeting of Ministers of Science at OECD in October I971. The main theme of the report concerns the broad changes in the distribution of R & D expenditures, which have occurred in the OECD area in the I96os and those, which may be expected or desired in the 1970s. The report starts, however, from the position that the scale and trend of R & D expenditures can only be sensibly discussed in relation to broader issues of policy, which mission-oriented programmes are designed to serve. Although OECD has kindly given permission for its publication in Science Studies, it appears here as a Discussion Paper, designed to stimulate reassessment of certain basic assumptions that have characterized research in science policy to date. OECD bears no responsibility for the views expressed, which are entirely those of the authors. They are deeply indebted to M. Fabian for invaluable advice and assistance on the R & D statistics.

Technical Change, Returns to Scale, and the Productivity Slowdown

Nadiri, M.I.

The recent slowdown in the growth of productivity in the U.S. has attracted considerable attention. The deceleration has been attributed to many factors, including a slowdown in the growth of capital intensity and the stock of R&D, changes in the sectoral composition of output, dramatic rises in oil prices, and declines in the capital utilization rate due to sluggish demand. In this article, the authors provide a framework for decomposing changes in total factor productivity (TFP) in the presence of economies of scale. The traditional growth accounting framework is a special case of our model. By allowing for economies of scale, authors demonstrate formally the positive relationship between growth in productivity and output, which is found in the empirical studies by economists John Kendrick, Nicholas Kaldor, and others. The model is based on an output demand function, a variable cost function, which is shifted by disembodied technical change and a stock of R&D, and a market-clearing rule, which equates output price to average variable cost plus quasi-rents to R&D. This framework identifies the contribution of demand growth, real factor prices, and the stock of R&D to changes in the growth of TFP.

Effect of Publicly and Privately Financed R&D on Total Factor Productivity Growth

Niininen, P.

The effects of privately and publicly financed R&D on total factor productivity growth are examined. Total factor productivity (TFP) is decomposed into mark-up, exogenous demand, factor price, and publicly and privately financed R&D effects at the industry level. The constructed dataset consists of 11 Finnish manufacturing industries in 1975–1993. The results suggest that both privately and publicly financed R&D has a considerable effect on the TFP rate of growth but R&D explains only part of the technical progress. On average, total R&D accounted for about 9 percent of the TFP rate of growth in manufacturing industries while one-fourth of the growth could be attributed to the residual technical change. Exogenous demand effect was the biggest component, accounting almost for one-third of the TFP rate of growth.

Knowledge Flows and Productivity

Peri, G.

A Cost-Benefit Analysis of R&D Tax Incentives

Russo, B.

Although technical knowledge generates spillover benefits, production of technical knowledge creates congestion externalities; thus, private R&D investment could be inefficient. A computable general equilibrium model is used to rank tax incentives by their effects on research effort and measure welfare effects. Five results stand out: R&D tax credits produce relatively large increases in research effort and welfare. Lower corporate income tax rates and ITCs for downstream users of high-tech production inputs rank second. Revenue losses from lower personal income tax rates can produce welfare losses. Ironically, ITCs for upstream producers of innovative inputs are ineffective. Incremental R&D credits dominate comprehensive credits.

Understanding Patents: The Role of R&D Funding Sources and the Patent Office

Sanyal, P.

This paper analyzes the effects of different sources of R&D funding and patent office attributes on the patenting process. Another important contribution is modelling the effect of a random delay in the ‘pendency’ time as a stochastic process and quantifying its effect on patenting. The empirical estimation is based on four major industries – electronics, chemical and biology, transportation and aeronautics – for the time period 1976-1998. The primary results are: First, the source of R&D funding as well as performer (academic, federal and industry) has a differential effect on patenting. Second, the effects of some types of R&D and spillovers are different post-1990. Third, in the short run patenting is heavily influenced by patent office attributes. The state-level analysis sheds light on the differing role of the federal government as an R&D performed and as a source of R&D funds for industry. The results contribute to a better understanding of the shortcomings in the formulation of science indicators.

The Effects of Double-Counting and Expensing on the Measured Returns to R&D

Schankerman, M.

This article focuses on the effects of double-counting and expensing on the measured returns to R&D. The contribution of research and development (R&D) to economic growth has been measured in two general ways. The first is to compute total factor productivity in a growth accounting framework and to attribute this “residual” growth to R&D. The prevailing view is that, in the presence of double-counting, the measured contribution of R&D represents the return above and beyond the normal remuneration to traditional capital. The author demonstrates that this excess returns interpretation (ERI) is essentially correct in the growth accounting framework and that the resulting bias in the measured contribution of R&D to growth is large. In postwar U.S. manufacturing the measured residual is biased downward by as much as 30%. The expensing bias is downward and reinforces the excess returns bias in this case, and the total bias is large. In both the growth accounting and econometric contexts, the magnitude of the biases may vary across samples and over time. There is simply no substitute for properly measured variables.

The Effects of Double-Counting and Expensing on the Measured Returns to R&D

Surendra, G., Gu, W., Lee, F. C.

The aim of this paper is twofold: to examine the relationship between IT investment and labour productivity growth; and to examine the importance for labour productivity growth of domestic and international R&D spillovers embodied in IT goods.

Improving Canada’s SR&ED Tax Incentive Program

Warda, Jacek.

This is a Conference Board of Canada Members’ Briefing detailing some of the advantages and shortfalls of the SR&ED tax incentive program.

Research and Development Productivity and Spillovers: Empirical Evidence at the Firm Level

Wieser, R.

A variety of methods have been used to investigate the empirical relationship between research and development (R&D) spending and the productivity of firms. The most widely employed frameworks are the production function and the associated productivity framework. In these settings, productivity growth is related to expenditures on R&D, and an attempt is made to estimate statistically the part of productivity growth that can be attributed to R&D activities. This article surveys the expansive body of empirical literature on this subject and finds a large and significant impact of R&D on firm performance on average. However, the estimated returns vary considerably between the different studies due to differences across data samples and econometric models, as well as methodological and conceptual issues. A meta-analysis on the studies surveyed reveals that the estimated rates of return do not significantly differ between countries, whereas the estimated elasticities do. Furthermore, the estimated elasticities are significantly higher in the 1980s and consistently higher in the 1990s compared with the 1970s. Hence, contrary to a widely held belief, we find no convincing evidence of an exhaustion of R&D opportunities in the last two decades.

Cross-Country R&D and Growth: Variations on a Theme of Mankiw-Romer-Weil

Brat D.A., Park W.G.

This paper studies how international research and development (R&D) activities contribute to international differences in productivity. Domestic R&D is an important factor of production as are spillovers from foreign research. While cross-country differences in domestic research contribute to international differences in productivity, world research spillovers contribute to narrowing those differences. Furthermore, in the presence of international R&D spillovers, global increasing returns to research exist. This enhances the effect of world research on the growth rates of countries that receive spillovers.

R&D Spillovers and the Geography of Innovation and Production

Audretsch D.B., Feldman M.P.

Previous research has indicated that investment in R&D by private firms and universities can lead to knowledge spillover, which can lead to exploitation from other third-party firms. If the ability of these third-party firms to acquire knowledge spillovers is influenced by their proximity to the knowledge source, then geographic clustering should be observable, especially in industries where access to knowledge spillovers is vital. The spatial distribution of innovation activity and the geographic concentration of production are examined, using three sources of economic knowledge: industry R&D, skilled labor, and the size of the pool of basic science for a specific industry. Results show that the propensity for innovative activity to cluster spatially is more attributable to the influence of knowledge spillovers and not merely the geographic concentration of production.

Barriers to Innovation and Subsidy Effectiveness

Gonzalez X., Jaumandreu J., Pazo C.

We explore the effects of subsidies by means of a model of firms’ decisions about performing R&D when some government support can be expected. We estimate it with data on about 2,000 performing and nonperforming Spanish manufacturing firms. We compute the subsidies required to induce R&D spending, we detect the firms that would cease to perform R&D without subsidies, and assess the change in the privately financed effort. Results suggest that subsidies stimulate R&D and some firms would stop performing in their absence, but most actual subsidies go to firms that would have performed R&D otherwise. We find no crowding out of private funds.

Public support to business R&D: A survey and some new quantitative evidence

Capron, H., Van Pottelsberghe, B.

The objective of this paper is to provide, with reference to the integrated assessment scheme suggested by Capron and van Pottelsberghe (1997a), some policy implications that might arise from a quantitative evaluation of the effectiveness of R&D subsidies in seven major industrialised countries. Ultimately, we would like to see whether econometric estimates would allow innovation policies to become, tomorrow, “a little bit less a matter of faith and a little bit more a matter of understanding”, thus challenging the famous statement of Rothwell and Zegveld (1988). Our empirical framework covers two categories of studies. First, we test whether R&D subsidies have a direct impact on productivity growth. Second, we evaluate the stimulation effect of these subsidies on private R&D investment. The evaluation procedure is implemented both at the aggregate manufacturing level and for 22 disaggregated manufacturing industries. The paper is structured as follows. The existing quantitative literature on the effectiveness of R&D subsidies is surveyed in the next section. The third section concentrates on the evaluation of the impact of R&D subsidies on productivity and on the private decision to invest in R&D. The conclusions and some suggestions related to the design of public investment policies are presented in the final section.

Leveraging Research and Development: Assessing The Impact of the U.S. Advanced Technology Program

Feldman, M.P., Kelley, M.

This paper examines the factors that affect a firm’s chances of winning an award from the Advanced Technology Program (ATP) and the subsequent impact of the award on a firm’s success in raising additional funds for its research and development (R&D) activities. Analysis of data from a survey of 1998 ATP applicants shows that proposals with higher ratings by technical and business/economic experts have a greater chance of winning an award. Further, the projects and firms selected by ATP are more willing to share their research findings with other firms, and tend to be those that open up new pathways for innovation through combining technical areas or by forming new R&D partnerships. Most of the non-winners have not proceeded with any aspect of the R&D project proposed to ATP and, of those that have, most did so at a smaller scale. Furthermore, the ATP award has prestige value for the winning firms; the halo effect from the award increases the success of these firms in attracting additional funding from other sources. Our conclusion is that the ATP is leveraging activities that have a strong potential for broad-based economic benefit.

Effects Directs et Indirects de la R&D sur la Productivite: Une Analyse de l’Industrie Manufacturiere Belge

Fecher, F.

The present study investigates the effects of research and development (R&D) on productivity growth in the Belgian manufacturing industry. The data concerns a sample of firms belonging to thirteen sectors and covers the period 1981-1983. The method is based on econometric estimations of Cobb-Douglas production functions, which include in addition to traditional inputs three technological factors: direct R&D, national and international indirect R&D. The links between productivity growth and R&D are rather weak: neither the direct R&D, nor the international indirect R&D has significant impacts on productivity growth. On the other hand, a statistically significant coeeficient is obtained for national indirect R&D. We also find that those three types of R&D are rather substitutes except in the low R&D intensive sectors where they are complements.

European Research Joint Ventures and Innovation: A Microeconometric Analysis of RJV Impact on Firms’ Patenting Activity

Cusmano, L.

Evolutionary theories of technological change and industrial dynamics give primary importance to interaction between heterogeneous agents, endowed with complementary assets and competencies. Accordingly, support to co-operative R&D is given a central role in technology policy, as a mean for increasing system connectivity, triggering virtuous cycles of learning and promoting variety. However, despite the increasing attention to the rationales, benefits and costs of R&D agreements that, within the broader debate about technology policy, have been extensively investigated through appreciative theories, game theoretical models, and strategic management studies, there has been little corresponding empirical work on their efficacy. The empirical investigations have been conducted mostly at the level of case studies or one-time surveys of participants. The technology policy emphasis on extensive collaborative programmes, covering nearly every area of industrial research and involving very large numbers of organisations, has been barely matched by systematic investigations on large samples.

Basic Research and Productivity Increase in Manufacturing: Additional Evidence

Link, A.N.

This paper conveys the findings of a sample of 51 major manufacturing firms, which were active in research and development (R&D) to support Edwin Mansfield’s paper, Basic Research and Productivity Increase in Manufacturing,³ which found that “firm rates of productivity change are related to the amount of company-financed basic research performed, certeris paribus.” ⁴ The paper shows statistics, which “confirm Manfield’s proposition that company-financed basic research is a significant determinant of firm productivity growth.” The paper also highlights findings that support that “the basic portion of government-sponsored R&D is an important part of the R&D investments of a firm.” ⁴

Research and Development, Production Functions, and Rates of Return

Minasian, J.

This paper reports on the findings from a study for “‘rate of return’ to research and development [R&D] expenditures in a production function setting.” The author previously argued that R&D contributed to efficiency and that the amount of R&D conducted by a firm correlated positively to its growth in productivity. The paper shows the formulae for their findings, which concluded that “$0.54 worth of value added can be created per year indefinitely if the stock of [R&D] is increased by $1.00 and the new level [is] maintained permanently. This means that gross return on investment in research and development is 54 percent as compared with 9 percent for capital.” ⁶ This was determined using figures from R&D projects that failed and those that were successful. Minasian concludes that “increased productivity, caused by [R&D], is partially passed on to consumers via lower prices for goods, [and so the] estimate will tend to reflect social returns.” ⁶

Industrial R&D in Japan and the United States: A Comparative Study

Mansfield, E.

This paper studies the relationship between the extent of industrial R&D in Japan and the U.S.A, and the rate of their productivity increases “with particular emphasis on the differences between these countries in the effects of applied R&D and basic research.” ⁸ Mansfield’s findings show that Japan’s rate of return [ROR] in R&D “was about 42 percent,” ⁸ however, Mansfield also highlights that a firm’s tendency to import technology could have an effect on its ROR, and so with this variable Japan’s ROR on R&D fell to 33 percent, which was still relatively high. The findings also suggest that, compared with firms in Japan, firms in the U.S.A. “obtained higher returns from basic research,” however firms in Japan “obtained higher returns from applied R&D than [firms in the U.S.A.].” ⁸ Mansfield suggests that this is due to “Japan’s industrial R&D [being] financed by the government (and has gone largely for non-commercial purposes),” and that in the U.S.A. university researchers play a larger role in R&D than in Japan, contributing to the U.S.A.’s results in basic research. The study also found that “Japanese firms base about one-third of their R&D projects on suggestions from their production personnel and customers, whereas only about one-sixth of American projects stem from these sources,” ⁸ and that in Japan less small to medium-sized businesses contribute to R&D. Mansfield concludes that Japan has utilized process-based R&D more effectively than the U.S.A. to improve existing products; however, the U.S. has focused on product-based R&D thus creating more new products.

The R&D Tax Credit and Other Technology Policy Issues

Mansfield, E.

This paper presents the findings from analyses of R&D tax credits in Canada, the U.S.A. and Sweden. Mansfield finds that across the three countries, R&D credits and incentives only increased industrial R&D by one to two percent, or “one-third of the foregone government revenue.” ¹² Mansfield suggests that to increase R&D credits’ effectiveness, the definition should be refined and “the computation of the base amount should be changed.” ¹³ Additionally, Mansfield concludes that patents were not running out of favour with firms; however, patents were only essential to the chemical and pharmaceutical industries.

Explicit and Implicit Tax Effects of the R&D Tax Credit

Berger, P.

This paper reports the findings from its analysis of the 1981 R&D tax credit. Berger found that the tax credit “increased R&D intensity (measured as the ratio of R&D spending to sales) by at least
2.9%, on average, during 1981-89;” ¹⁴ however this increased to 8.5% between 1982 and 1985 when credit was at its highest. This finding concluded “the credit induced $1.74 of additional spending per revenue dollar foregone during 1982-85,” ¹⁴ which was higher than had been previously reported.

Benefit-Cost Analysis of Federal and Provincial SR&ED Investment Tax Credits

Lester, J.

There is a sound public policy case for subsidizing R&D. When firms perform R&D, they create knowledge that allows them to introduce new products, improve existing goods and services or reduce production costs. However, some of the knowledge created inevitably leaks out or spills over to other firms, allowing them to reap benefits from R&D without performing it themselves. These spillover benefits improve Canada’s overall economic performance, but firms do not consider them when deciding how much to invest in R&D, so a subsidy to encourage more R&D is the right policy response.¹⁶

Scientific Research and Experimental Development (SR&ED) Engagement and Management by Small Canadian-Controlled Private Corporations (CCPCs)

Perreault, Lucille

Innovation plays a vital role in the growth of an economy. Spending on research and development (R&D) is an important determinant of the innovation process. Engaging in R&D can be considered risky for firms as there is no guarantee that there will be a positive return and concerns of competitors imitating a successful innovation. As a result, firms may be reluctant to engage in R&D. These challenges may be especially acute for small Canadian-controlled private corporations (CCPCs), who may not have the same access to resources and expertise as larger firms. Given the importance of innovation for growth, governments seek to intervene to fix the R&D under-investment issue through grants, loans, or tax incentives. Since 1944, the Canadian government has used the Income Tax Act and R&D tax incentives to stimulate scientific research activity. The incentives have evolved, and since 1985, the primary mechanism used in Canada to encourage R&D is the Scientific Research and Experimental Development (SR&ED) program. The SR&ED program comprises tax deductions and an investment tax credit and with differing rates for smaller CCPCs, individuals, and larger corporations. Traditional research in R&D and tax incentives has evaluated whether the incentives displace private R&D activities (crowding-out) or induce increased R&D expenditures and projects (additionality). There was little understanding of why CCPCs engage in R&D and how they manage their R&D practices. In order to better understand the motivation to engage in R&D and how small CCPCs manage their R&D practices in the context of the SR&ED program, the research design includes semi-structured interviews with 18 small CCPCs. This study finds that firms that engage in R&D are more likely to have an internal context that has values and a strategic orientation to develop innovation. The decision to engage in R&D is also influenced by the product lifecycle and resource, systems, and processes constraints. In contrast, the R&D management practices are influenced by the external environment. The findings of this study provide insight into the motivation to apply for the SR&ED program and the influence the program has on R&D behaviour within a small CCPC.¹⁷

Multinational Pharmaceutical Companies Shortchange Canada in Research and Development Investments: Is It Time to Pursue Other Options?

Lee S.K., Mahl S.K., Green J.J., Lexchin J.

In 1987, the government passed legislation to protect brand-name pharmaceutical firms against competition from generic drug brands in exchange for economic investment in Canadian pharmaceutical research and development (R&D). Since 2002, brand-name pharmaceutical companies’ R&D investments have fallen short of their commitment, while Canadians now pay the fourth highest drug prices of all the Organisation for Economic Co-operation and Development member countries. In this article, we examine the degree to which brand-name pharmaceutical companies have fallen short of their promises, discuss whether a patent policy is the best strategy to secure Canadian pharmaceutical R&D funding and propose practical alternatives to this arrangement.¹⁸

Commentary: Reconsidering Pharmaceutical Research and Development Investments

Gagnon, M.

Following Lee and colleagues’ (2023) article, “Multinational Pharmaceutical Companies Shortchange Canada in Research and Development Investments: Is It Time to Pursue Other Options?”, explaining how Canadians are being shortchanged by drug companies when it comes to investments in research and development (R&D), this rejoinder adds context and appends two other very problematic elements in the debate between wishful narratives over the industry’s contribution in R&D and actual numbers. First, even the current stricter definition of R&D investment might simply be too large considering that elements such as seeding trials – a well-known marketing device – can be accounted for as R&D expenditures. Second, this rejoinder identifies how Statistics Canada acted in concert with Innovative Medicines Canada to reinforce the industry’s preferred narratives around R&D expenditures. This situation puts into question the trustworthiness of Canada’s statistical agency.¹⁹

Investment in research and development and export performances of Canadian small and medium-sized agri-food firms

Tamini, L. & Valea, A.

The objective of this study is to analyze the impact of research and development (R&D) investment on the export performance of Canadian agrifood small and medium-sized enterprises (SMEs) and on that of related sectors, namely, the textile and clothing sector and the manufacture of leather goods and similar products. First, we analyzed explanatory factors for R&D expenses, and then, we analyzed the impact of R&D on extensive (market access) and intensive (trade value) margins of trade using a difference-in-differences approach. We used data obtained from the Statistics Canada’s National Accounts Longitudinal Microdata File (NALMF) for 2010–2015 and the Trade by Exporter Characteristics (TEC) database. The size of firms and their support from the Canadian government affect their propensity to invest in R&D and the amount of R&D expenses and their intensity, measured as the ratio of R&D to sales of goods and services. Overall, our results show that investment in R&D has a positive impact on the export performance of agrifood SMEs; the impact is smaller when the destination is one of the states in the United States.²⁰

Do winners pick government? How scale-up experience shapes entrepreneurs’ assessments of innovation policy mixes

Denney, S., Southin, T., & Wolfe, D.

How do entrepreneurs of high-growth firms in small, open economies evaluate innovation policy mixes? In response to market consolidation by large firms, governments in such countries are using a mix of innovation policy tools to support firms with high-growth potential in digitally intensive sectors. Government objectives, however, are not being realized. Bringing actor-centric perspectives to the policy mix literature, we analyze interviews with entrepreneurs from Canadian technology firms to determine whether there is a disconnect between the objectives and instruments employed by the government. With distinct policy preferences rooted in their growth experiences specific to the country’s political economy, we find that scale-up entrepreneurs prefer a more active role of the government in the form of demand-side, direct, and targeted innovation instruments. The findings presented in this article provide a more nuanced understanding of the innovation policy landscape and the preferences of technology scale-up firms.²¹

Practical Documentation of Qualifying Research Activities for the SR&ED Tax Credit

Nickerson, J., Rogers, A., Farrington, A., Nguyen, A.

The Canadian tax program for Scientific Research and Experimental Development (SR&ED) is a crucial component of Canadian economic policy as it encourages domestic companies to engage in risk-taking initiatives through tax incentives such as credits. While the SR&ED program has evolved over the decades, the SR&ED Five Questions have established the principal criteria that determine the eligibility of an SR&ED claim. The key take-away points of this paper are that the Canada Revenue Agency is progressively becoming more particular and stringent when reviewing SR&ED claims and in light of this trend, documentation is becoming ever important in the substantiation of SR&ED claims. Although not required with submission, documentation provides taxpayers with evidence to support their claims in the case of a CRA or court challenge. In the event of an audit, a taxpayer must prove that its SR&ED activities are eligible and meets the “Five Question Test.” As this paper argues, recent case law has shown the importance of clear and relevant supporting evidence, especially documentation, in substantiating that an SR&ED project meets the Five Questions criteria.²²

Policy Forum: The Uneasy Case for a Canadian Patent Box

Boadway, R., Tremblay, J.F.

Several countries, mainly European, have introduced patent boxes, which reduce the corporate tax rate applicable on income generated from successful research and development (R & D) expenditures. Quebec has implemented a form of patent box for manufacturing firms that generate income from patents developed in the province, and the Saskatchewan government has announced that it will follow suit. There have been calls for the federal government to introduce a patent box for Canada. The intent is to encourage firms to engage in R & D activity that leads to intellectual property and to exploit the innovations in Canada. In this article, the authors draw on the literature and experience with patent boxes elsewhere to review the case for a patent box as an element of R & D policy in Canada. They conclude that a dual approach to R & D incentives involving some combination of ex ante tax incentives and patent boxes is reasonable, especially if patent box support encompasses a variety of forms of intellectual property. At the same time, if patent boxes are introduced, they should conform to the guidelines set out by the Organisation for Economic Co-operation and Development, in the base erosion and profit shifting (BEPS) action plan, which restrict eligibility by conditions ensuring domestic development of patents.²³

Tax Support for R&D and Intellectual Property: Time for Some Bold Moves

Lester, J.

The federal budget announcement of a review of the Scientific Research and Experimental Development (SR&ED) investment tax credit suggests that the review will be focused on issues that will have, at best, a minor impact on the effectiveness of the credit.

The announcement raises the issue of the program’s effectiveness in encouraging research and development (R&D) that benefits Canada, presumably by encouraging more commercialization activity at home. The SR&ED program is not the right instrument for achieving this objective. A better approach is to implement policies, such as an intellectual property box or targeted subsidies, that act more directly on the incentive to commercialize R&D in Canada.

The announcement also highlights the need to simplify the SR&ED program. This is a worthy goal, but before embarking on another round of simplification, the Canada Revenue Agency should gather evidence on the costs firms incur in applying for a SR&ED tax credit.

Bold changes are needed to improve the effectiveness of the SR&ED investment tax credit:
• Support for R&D performed by large firms should be increased and support for smaller firms should be reduced. This rebalancing would leave smaller firms with substantial subsidies while increasing support where the social benefits from R&D are greater.
• Credit rates should vary by the type of R&D performed. The social benefits from basic and applied R&D are higher than the social benefits from experimental development. The credit rates should reflect this difference.

The budget also announced that the government will consider the merits of taxing income from intellectual property (IP) at a special low rate. Implementing an IP Box as a complement to the SR&ED tax credit would be good public policy.²⁴

Finances of the Nation Tax Subsidies for R & D in Canada, 1981-2016

Crisan, D., McKenzie, K.

For almost 60 years, the Canadian Tax Foundation published an annual monograph, Finances of the Nation, and its predecessor, The National Finances. In a change of format, the 2014 Canadian Tax Journal introduced a new “Finances of the Nation” feature, which presents annual surveys of provincial and territorial budgets, and topical articles on taxation and public expenditures in Canada. In this issue, Daria Crisan and Kenneth J. McKenzie discuss government policy related to innovation, focusing on tax subsidies for research and development (r & d) provided by the federal and provincial governments in Canada. Using various metrics based on the marginal effective tax rate approach, Crisan and McKenzie document federal and provincial tax policy as it relates to r & d over the period 1981-2016. The data are unique in that no similar provincial-level panel, or longitudinal, data set exists for Canada. The article concludes with some comments regarding the “r & d policy puzzle” in Canada.²⁵

The Proposed New Scientific Research and Experimental Development Rules – An Update on Research Incentives

Sapona, I.

Recent draft legislation and regulations aim to make the tax incentives applying to scientific research and experimental development (SR&ED) less restrictive. The changes expand and clarify the tax incentives available for SR&ED, and make it easier for some taxpayers to claim an investment tax credit.

Show 25 footnotes

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Crisan, D., & McKenzie, K. (2017). Finances of the Nation Tax Subsidies for R & D in Canada, 1981-2016. Canadian Tax Journal, 65(4), SSRN: 3135497. https://econ.ucalgary.ca/manageprofile/sites/econ.ucalgary.ca.manageprofile/files/unitis/publications/1-9386894/17CTJ4-FN-FINAL.pdf ↩