Does Cluster Policy Trigger R&D Activity? Evidence from German Biotech Contests

This paper evaluates the R&D enhancing effects of two large public grant schemes for the German biotechnology industry (BioRegio, BioProfile). Both grant schemes are organized as contents of competition and aim at fostering the performance of innovative firms organized in clusters. We apply Difference-in-Difference estimation techniques in a generalized linear model framework, which allows us to control for different initial regional conditions in R&D activity of the biotech sector. Our econometric findings support the view that winners generally outperform non-winning participants during the treatment period, thus indicating that exclusive funding as well as the stimulating effect of being a “winner” seems to work in the short-term. Apart from this direct effect, no beneficial indirect effect stemming from the mobilization of non-winning participants in the contests could be detected. Finally, first attempts in estimating the long-term effect of public R&D grants on winner regions in the post-treatment period show mixed results.