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Innovation Policy and Economic Growth

Author(s): Dirk Czarnitzki and Otto Toivanen

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This paper establishes theoretically a link between investments in economic growth and investments in R and D. This raises the importance of innovation policies as they are designed to narrow the gap between the socially optimal and the privately optimal levels of R and D. As innovation policies may be subject to crowding-out effects, we, second, empirically test whether R and D subsidies stimulate private investment in two countries of the European economic area. We employ Belgian and German firm level data for estimating treatment effects models. It turns out that public R and D grants stimulate private investments in both countries. Furthermore, the estimated treatment effects vary with the innovation experience of firms and their past labor productivity.

(European Economy. Economic Papers 482. April 2013. Brussels. PDF. 44pp. Tab. Bibliogr. Free.)

KC-AI-13-482-EN-N (online)
ISBN 978-92-79-28564-6 (online)
doi: 10.2765/42480 (online)

JEL classification: G38, H25, L59, O31, O38

Economic Papers are written by the staff of the Directorate-General for Economic and Financial Affairs, or by experts working in association with them. The Papers are intended to increase awareness of the technical work being done by staff and to seek comments and suggestions for further analysis. The views expressed are the author’s alone and do not necessarily correspond to those of the European Commission.

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