The effectiveness of public R&D subsidy on SMEs’ innovation capability and catch-up in the Korean manufacturing industry

ABSTRACT

This study investigates the effect of R&D subsidy associated with R&D projects on the productivity and internal capacities of Korean manufacturing small- and medium-sized enterprises (SMEs). It also addresses the difference in effectiveness attributed to the characteristics of such projects. We constructed distinctive firm-level panel data combining the National Science and Technology Knowledge Information Service and Korea Enterprise Data databases and used stochastic frontier analysis with multivariate matching techniques. The results reveal that subsidised R&D projects did not help Korean SMEs in improving productivity and efficiency. Compared with the control group, which had similar external features, beneficiaries showed worse productivity growth as well as efficiency changes. Moreover, the effects of R&D subsidies differ depending on project characteristics. Specifically, the amount and period of R&D subsidy had a positive effect on catch-up but a negative effect on SMEs’ innovation capacity. These results demonstrate the need for renovating the current support system for SMEs’ R&D activities in Korea.

KEYWORDS:

• R&D subsidy
• SMEs
• innovation capability
• catch-up

Acknowledgements

Section 3.2.2 of this paper was written by referencing the dissertation of the correspondence author, Seunghwan Oh. The dissertation information is follows: Seunghwan Oh (2014), ‘Study on the Complementarity Effect according to the Overlapped, Repetitive and Sequential Support in Innovation Policy.’ Dissertation, Graduate School of Seoul National University. (https://s-space.snu.ac.kr/bitstream/10371/119948/1/000000021782.pdf).

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 Strictly speaking, Galindo-Rueda and Verger (2016) divided manufacturing industries into high, medium-high, medium and medium-low R&D intensity groups.

2 R&D intensity is calculated as the industry's R&D expenditure divided by gross value-added or gross output.

Additional information

Notes on contributors

Won-Sik Hwang

Won-Sik Hwang received a B.S. and a M.S. in electrical and computer engineering from the Seoul National University, Seoul, Korea, and a Ph.D. from the Technology Management, Economics, and Policy Program at Seoul National University, Korea. After working in Korea Institute for Industrial Economics and Trade as an associate research fellow, he is working in the economic department of Jeonbuk National University. His research includes various fields of R&D and innovation using econometrics and economic models.

Seunghwan Oh

Seunghwan Oh received a B.S. and a M.S. in Material Science and Engineering from the Seoul National University, Seoul, Korea, and a Ph.D. in economics from the Technology Management, Economics, and Policy Program at Seoul National University, Korea. After working in Science and Technology Policy Institute as a research fellow, he is working in the Department of Management of Technology of Gyeongsang National University. His research includes various fields of R&D and innovation policy for SMEs using econometric analysis.