IMF Working Papers

Promoting Innovation: The Differential Impact of R&D Subsidies

ByReda Cherif, Fuad Hasanov, Christoph Grimpe, Wolfgang Sofka

September 23, 2022

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Reda Cherif, Fuad Hasanov, Christoph Grimpe, and Wolfgang Sofka. "Promoting Innovation: The Differential Impact of R&D Subsidies", IMF Working Papers 2022, 192 (2022), accessed 12/4/2025, https://doi.org/10.5089/9798400217968.001

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

We investigate the effect of R&D subsidies on firms’ innovation by ownership, industry, and firm size using German firm-level data. The impact of R&D subsidies is heterogeneous across industries for multinational corporations (MNCs) and domestic firms while it does not differ substantially by firm size. Domestic firms have a larger response in R&D spending in low-tech manufacturing, knowledge-intensive services, and technological services while the response of domestic and foreign MNCs is broadly similar and is greater in medium-tech and high-tech manufacturing. Foreign MNC subsidiaries’ response in terms of patents is greater than that of domestic MNCs in most industries.

Subject: Economic sectors, Expenditure, Government subsidies, Investment policy, Manufacturing, National accounts, Services sector, Transnational corporations

Keywords: Global, Government subsidies, high-tech manufacturing, Innovation, investment, Investment policy, low-tech manufacturing, Manufacturing, multinationals, patents, R&D, R&D spending, R&D subsidy, research and development, Services sector, subsidiaries' response, subsidies, technology policy, Transnational corporations

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