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Impact of government support on R&D and innovation

This paper evaluates whether public support from innovation from the central government or the European Union spurs innovation in Austrian firms. The effect is estimated separately on R&D expenditures and the output side of innovation, measured by the share of total sales due to new or substantially modified products. A distinction is also made between products new to the firm and products new to the market. The analysis is based on the micro data from the third wave of Community Innovation Survey, CIS 3, covering the years 1998-2000. The effectiveness is estimated using a structural model explaining the determinants of various sources of government support and their effects on R&D and innovation output. Receiving central government support increases the intensity of R&D by 2.3 percentage points. EU support is never significant once national support is taken into account. Central government support yields a 2.5 percentage point increase in the share of new to firm innovative sales. When new to market product innovations are considered, central government support leads to a total effect on the share of new to market innovative sales of 3.4 percentage points.