Effects of Public R&D Funding

The aim of this research is to investigate the incentive effects of the funding instruments of the Finnish Funding Agency for Technology and Innovation (Tekes). The data basis for this analysis is the forth wave of the Community Innovation Survey covering the years 2002 to 2004. In addition the analysis uses the database on business subsidies maintained by the research lab of Statistics Finland. The database includes information on public direct business subsidies and loans at the firm level for years 2000-2005. It also includes the business subsidies and loans granted and paid by Tekes. The results based on the microeconometric propensity score matching technique show that the public R&D funding has a significant positive effect on the innovation inputs, innovation outputs and on the collaboration breadth and depth of the funded companies. The stochastic frontier analysis reveals that the public R&D funding reduces the inefficiency of the innovation production process. The input into the innovation process is captured by the innovation expenditures. The innovation output is proxied by the number of patent applications.