The differential impact of R&D subsidies

Promoting innovation: the differential impact of R&D subsidies


Reda Cherif; Fuad Hasanov; Christoph Grimpe; Wolfgang Sofka

Publication date:

September 23, 2022

Electronic access:

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Disclaimer: IMF Working Papers describe ongoing research by the author(s) and are published to elicit comment and encourage debate. The opinions expressed in IMF Working Papers are those of the authors and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.


We investigate the effect of R&D subsidies on firm innovation by ownership, industry, and firm size using German firm-level data. The impact of R&D subsidies is heterogeneous from one sector to another for multinational enterprises (MNEs) and national enterprises, while it does not differ significantly according to the size of the enterprise. Domestic firms have a larger R&D spending response in low-tech manufacturing, knowledge-intensive services, and technology services, while the response of domestic and foreign multinationals is broadly similar and is more important in medium and high technology manufacturing. The response of foreign affiliates of multinationals in terms of patents is superior to that of national multinationals in most sectors.

Donald E. Patel