This study analyses the effects of public R&D policy schemes on the innovation activities of firms located in Eastern Germany. This is the first study which considers the effects of public R&D programmes in a transition economy. The main question in this context is whether public funds stimulate R&D activities or simply crowd out privately financed R&D. Empirically, we investigate the causal effects of all public R&D schemes in Eastern Germany using a matching approach. It turns out that firms increase their innovation activities if they receive public funding. However, this effect decreases with firm size.


R&D, Subsidies, Transition Economy, Matching.