Effectiveness and Efficacy of R&D Subsidies: Estimating Treatment Effects with One-sided Noncompliance
In evaluating the effectiveness of R&D subsidies, the literature so far has completely neglected the possibility of misappropriation of public funds. This paper contributes to the literature by evaluating the causal effect of R&D subsidies on R&D expenditures when monitoring is weak and misappropriation takes place due to moral hazard behavior. Our analysis is based on Chinese firm-level data for the period 2001-2011. Misappropriation is a major concern as we calculate that 42% of grantees misused R&D subsidies, corresponding to 53% of the total amount of R&D subsidies. In a setting with one-sided noncompliance to funding contract rules, we differentiate between the intention-to-treat (ITT) effect and the complier average causal effect (CACE). The ITT shows how effective the R&D policy was in practice when misappropriation exists. The CACE, in contrast, depicts how effective the policy could have been without misappropriation and thus is a measure for the efficacy of the R&D subsidy policy. Combining entropy balancing and IV methods to estimate both ITT and CACE, the ITT results show mild partial crowding out of R&D expenditures. Most strikingly, however, the CACE turns out to be more than twice as large as the ITT and confirms additionality of R&D subsidies. Thus, misappropriation of R&D subsidies considerably undermines the efficacy of Chinese R&D programs.
Date: Friday, 1 February, 2019
Time: 16:00 – 18:00
Venue: The University of Tokyo
Hongo Campus, Engineering Bldg 3, Room 211 (Lounge Lecture Room)
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Dr. Philipp Boeing is a researcher with the Centre for European Economic Research (ZEW) Mannheim, Germany in the Department “Economics of Innovation and Industrial Dynamics“. In addition, he is a Visiting Assistant Professor with the China Center for Economic Research, National School of Development at Peking University. His main research interests is the economics of innovation at the firm level, including policy evaluation, the productivity effects of research activities, and the quality of patents. His applied micro-econometric research is particularly concerned with China’s development towards an innovation-driven economy and the impact of this on Europe.
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