Do Innovation Subsidies Crowd Out Private Investment? Evidence from the German Service Sector
ZEW Discussion Paper No. 02-04 // 2002This paper analyses the impact of public innovation subsidies on private innovation expenditure. In the empirical economic literature there is still no common support for the hypothesis of either a complementary or a substitutive relationship between public funding and private investment. We investigate whether firms of the German service sector increase their innovation effort when participating in public policy schemes. Cross-sectional data at the firm level are used to estimate the effect of subsidization. Applying a non-parametric matching approach we find evidence that the hypothesis of complete crowding-out effects between public and private funds can be rejected.