Effects of public funding on firm innovation: transforming or reinforcing a weak innovation pattern?

ABSTRACT

This paper adds to the ongoing debate on the effects of public funding programmes on business innovation. This policy instrument, based upon a simple but a robust rationale, has been applied in an almost homogeneous manner in different contexts, but evidence from such experiences is far from shown homogeneous effects. The main contribution of this paper is that it shows the limitations faced by public funding instruments in affecting a traditionally low innovative pattern. Using panel data techniques, we find heterogeneous effects of public funding on the innovation behaviour of Uruguayan firms between 2001 and 2015. Our results show that, after a strong public policy effort, the critical mass of innovative firms has hardly changed. Input additionality effects of public funding in private innovation investment are found, but only for innovation activities based on the acquisition of embodied knowledge. Moreover, we obtain some evidence of behavioural additionality in process and organizational innovation leading to higher productivity levels, but we find no effects on interaction for innovation.

KEYWORDS:

• Public funding
• additionality
• panel data
• Uruguay

JEL CLASSIFICATION:

• O3
• O38
• L2
• H81

Acknowledgements

We acknowledge the collaboration of the Agencia Nacional de Investigación e Innovación, Uruguay and the National Institute of Statistics, Uruguay, which provided access to UIS and ASEA microdata respectively. Moreover, we thank Gustavo Crespi, Michiko Iizuka and Cristina Chaminade for extremely useful comments and suggestions. We are also indebted to anonymous referees for providing insightful comments and suggestions which have immensely improved this paper. All remaining errors are ours.

Disclosure statement

No potential conflict of interest was reported by the authors.