NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

High Tech R&D Subsidies: Estimating the Effects of Sematech

Douglas A. Irwin, Peter J. Klenow

NBER Working Paper No. 4974
Issued in December 1994
NBER Program(s):   ITI

Sparked by concerns about their shrinking market share, 14 leading U.S. semiconductor producers, with the financial assistance of the U.S. government in the form of $100 million in annual subsidies, formed a joint R&D consortium -- Sematech -- in 1987. Using Compustat data on all U.S. semiconductor firms, we estimate the effects of Sematech on members' R&D spending, profitability, investment, and productivity. In so doing we test two hypotheses: the `commitment' hypothesis that Sematech obligates member firms to spend more on high- spillover R&D, and the `sharing' hypothesis that Sematech reduces duplication of member R&D spending. Whereas the commitment hypothesis provides a rationale for the government subsidies, the sharing hypothesis does not. We find that Sematech induced members to cut their overall R&D spending on the order of $300 million per year, providing support for the sharing hypothesis.

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Published: Journal of International Economics, vol. 40, no. 3/4, May 1996, pp. 323-344

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