The effects of government-industry R&D programs on private R&D: the case of the Small Business Innovation Research program

I ask whether government-industry commercial R&D grants increase private R&D. Regressing some measure of innovation on the subsidy can establish a correlation between grants and R&D, brit it cannot determine whether grants increase firm R&D or whether firms that do more R&D receive more grants. Using a dataset of firms involved in the Small Business Innovation Research (SBIR) program, I estimate a multiequation model to test these hypotheses. Firms with more employees and that appear to do more research win more SBIR grants, but the grants do not affect employment. Moreover, I find evidence that the grants crowd out firm-financed R&D spending dollar for dollar.