NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Financing of Research and Development

Bronwyn H. Hall

NBER Working Paper No. 8773
Issued in February 2002
NBER Program(s):   CF   PR

Evidence on the 'funding gap' for R&D is surveyed. The focus is on financial market reasons for underinvestment in R&D that persist even in the absence of externality-induced underinvestment. The conclusions are that 1) small and new innovative firms experience high costs of capital that are only partly mitigated by the presence of venture capital; 2) evidence for high costs of R&D capital for large firms is mixed, although these firms do prefer internal funds for financing these investments; 3) there are limits to venture capital as a solution to the funding gap, especially in countries where public equity markets are not highly developed; and 4) further study of governmental seed capital and subsidy programs using quasi-experimental methods is warranted.

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Document Object Identifier (DOI): 10.3386/w8773

Published: Bronwyn H. Hall, 2002. "The Financing of Research and Development," Oxford Review of Economic Policy, Oxford University Press, vol. 18(1), pages 35-51, Spring. citation courtesy of

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