Innovation Policy and Economic Growth

This paper establishes theoretically a link between investments in economic growth and investments in R and D. This raises the importance of innovation policies as they are designed to narrow the gap between the socially optimal and the privately optimal levels of R and D.

As innovation policies may be subject to crowding-out effects, we, second, empirically test whether R and D subsidies stimulate private investment in two countries of the European economic area. We employ Belgian and German firm level data for estimating treatment effects models. It turns out that public R and D grants stimulate private investments in both countries.

Furthermore, the estimated treatment effects vary with the innovation experience of firms and their past labor productivity.

ESO: Background information: Press Release: Mobilising innovation potential for growth: Commissioner Hahn calls on EU regions to act http://www.europeansources.info/record/press-release-mobilising-innovation-potential-for-growth-commissioner-hahn-calls-on-eu-regions-to-act/

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