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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):The International Trade and Investment Program

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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Document Object Identifier (DOI): 10.3386/w4974

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

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