R&D HETEROGENEITY AND THE IMPACT OF R&D SUBSIDIES

In this paper we study the determinants of R&D heterogeneity and the economic impact of R&D subsidies. We estimate a Schumpeterian growth model featuring firms with heterogeneous innovation efficiencies. The model fits well the R&D investment distribution, and the frequency and relative size of R&D performers. Using the model, we study the impact of a Norwegian R&D reform targeting firms with R&D spending below a certain threshold. The size-dependent subsidy increases aggregate R&D investment by 11.7%, but reduces growth and welfare. In contrast, a uniform subsidy stimulates investment, growth and welfare.

Automated summary

This paper investigates the determinants of R&D heterogeneity and the economic impact of R&D subsidies. The study finds that a size-dependent subsidy can increase aggregate R&D investment by 11.7%, but may reduce growth and welfare. In contrast, a uniform subsidy stimulates investment, growth, and welfare.