An Empirical Analysis of Factors Explaining the Level of R&D Subsidies and their Productivity Effects. Evidence from Firm-Level Panel Data

The Industrial Research Promotion Fund (Forschungsförderungsfonds – FFF) is Austria's most important source of finance funding R&D projects carried out by business enterprises. However, the decision on the level of R&D subsidies will be affected by both the funding agency's objectives and firm characteristics. The paper analyses the factors explaining the intensity of R&D subsidies as well as their productivity effects. The analysis is based on unique panel data for about 1,000 Austrian firms receiving R&D subsidies for the period 1996-2002. The results of the panel data analysis suggest that the ratio of R&D subsidies to total R&D expenditures is significantly negatively related to both firm size and the current R&D intensity, but not to the cash-flow ratio in the past. Furthermore, we find that newly founded enterprises as well as firms in the electrical machinery and software industry have a significantly higher ratio of R&D subsidies to total R&D. In contrast, fast output growth in the past is associated with a lower R&D subsidy ratio. Overall, the results are consistent with the fund's strategy.