The impacts of public support for innovation on firm productivity and on private investment in R&D in manufacturing and services in Colombia

ABSTRACT

This research analyzes the effectiveness of public support for innovation in the form of matching grants on productivity and on R&D intensity of manufacturing and service firms in Colombia, paying special attention to the impact of those funds aimed specifically at strengthening the innovation system. Results show that firms that received public funds for innovation have obtained significant improvements in productivity and have made greater efforts in R&D activities (compared to firms that did not receive matching grants). This suggests that public funds devoted to strengthening linkages among the different actors in the innovation system and to providing financial incentives to invest in R&D activities are effective mechanisms in the development of absorptive capacities, ultimately affecting both the learning process and the competitiveness of firms. These findings are particularly relevant for the design of public policies in developing countries, where innovation is a necessary condition for catching-up and economic upgrading.

KEYWORDS:

• Productivity
• innovation
• public funds
• additionality
• policy evaluation

JEL:

• O31
• H32
• L52

Disclosure statement

No potential conflict of interest was reported by the authors.

Correction Statement

This article has been corrected with minor changes. These changes do not impact the academic content of the article.

Notes

1 Other instruments included: lines of credit and regional science and technology funds.

2 Output additionality is widely confirmed empirically in terms of the propensity of firms to patent and to succeed in introducing new products to the market (Czarnitzki and Hussinger 2004; Bérubé and Mohnen 2009; Hewitt-Dundas and Roper 2010; among others).

3 This two-step procedure also allows us to identify the effect of the public support in innovation by controlling from those factors promoting firms’ innovative capabilities.

4 Although R&D intensity can be seen as an imperfect measure of the absorptive capacities, this indicator reveals the activities and efforts that firms carry out to create and to assimilate new knowledge.

5 This method allows to correct simultaneity problems arising from the correlation between the level of inputs and the unobserved process that determines the productivity of firms. It is important to note that the service sector data contain certain problems that do not allow us to estimate multifactor productivity in the same way as in the manufacturing sector. First, it was not possible to distinguish between skilled and unskilled labour. Second, the inclusion threshold varies by subsector and in many cases exceeds 20 or 75 employees, which implies a productivity bias of estimations towards medium and large firms.

6 For example, it is possible that some firms are more innovative than others, thereby generating the search for resources to finance their R&D processes. Fixed company effects control for non-observable scenarios such as this.

7 For 2014, this value was 137 million pesos, or approximately 40,000 USD.

8 For more details on the public instruments evaluated, see Table 1 in the supplementary material of this paper.

9 Such as the Colombian Fund for Modernization and Technological Development of Micro, Small, and Medium Enterprises (FOMIPYME); INNpulsa funds to support innovation in SMEs and entrepreneurship, and R&D projects financed by Colciencias, Sena and the Ministry of Agriculture and Rural Development.

10 This type of fund seeks to finance R&D projects, with high technological and commercial risk, carried out by SMEs.

11 For more details see Table 2 in the supplementary material of this paper.

12 Results for the complete sample including covariables employed for the propensity score matching can be found in the Table 3 of the supplementary material of this paper.

Additional information

Funding

The project was funded by the Development Bank of Latin America (CAF) [grant number 402300] in 2017 and was co-ordinated by the Observatorio Colombiano de Ciencia y Tecnología (OCyT).