Do R&D Subsidies Stimulate or Displace Private R&D? Evidence from Israel

Saul Lach

NBER Working Paper No. 7943
Issued in October 2000
NBER Program(s):Productivity, Innovation, and Entrepreneurship, Public Economics

In evaluating the effect of an R&D subsidy we need to know what the subsidized firm would have spent on R&D had it not received the subsidy. Using data on Israeli manufacturing firms in the 1990s we find evidence suggesting that the R&D subsidies granted by the Ministry of Industry and Trade stimulated long-run company-financed R&D expenditures: their long-run elasticity with respect to R&D subsidies is 0.22. At the means of the data, an extra dollar of R&D subsidies increases long-run company-financed R&D expenditures by 41 cents (total R&D expenditures increase by 1.41 dollars). Although the magnitude of this effect is large enough to justify the existence of the subsidy program, it is lower than expected given the dollar-by-dollar matching upon which most subsidized projects are based. This less than full' effect reflects two forces: first, subsidies are sometimes granted to projects that would have been undertaken even in the absence of the subsidy and, second, firms adjust their portfolio of R&D projects-closing or slowing down non-subsidized projects-after the subsidy is received.

download in pdf format
   (338 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w7943

Published: Lach, Saul, 2002. "Do R&D Subsidies Stimulate or Displace Private R&D? Evidence from Israel," Journal of Industrial Economics, Blackwell Publishing, vol. 50(4), pages 369-90, December. citation courtesy of

Users who downloaded this paper also downloaded* these:
Hall w8773 The Financing of Research and Development
Trajtenberg w7930 R&D Policy in Israel: An Overview and Reassessment
David, Hall, and Toole w7373 Is Public R&D a Complement or Substitute for Private R&D? A Review of the Econometric Evidence
Trajtenberg Government Support for Commercial R&D: Lessons from the Israeli Experience
Goolsbee w6532 Does Government R&D Policy Mainly Benefit Scientists and Engineers?
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us