Evaluating the effect of public R&D subsidies on Italian firms' innovation activities: a subgroup analysis of 2008 CIS data

This paper evaluates the effectiveness of public subsidies in fostering R&D activities of Italian firms using 2008 CIS data. Given the observational nature of data, the endogeneity of the subsidies is taken into account. To estimate the effect of subsidies on firms’ R&D activities, the propensity score matching is applied, controlling for determinants of public support and innovation activities. Furthermore, the heterogeneity of effects is investigated using a subgroup analysis. The underlying rationale is that the R&D funding impact is more realistic if its effect is measured on homogeneous groups, instead of measuring an average effect on a heterogeneous group of firms. The results from various propensity score matching lead to an increment of the R&D intensity of about 1.5 percentage points, and such a result, closely matches earlier empirical findings for Italy. In contrast, the subgroup analysis suggests that this is not a widespread finding; but, isolated to some subgroups.