The Effect Of Government Subsidies On R&D Investment

With the rapid development of economic globalization and science and technology, research and development activities has become an important means to enhance the level of technological innovation and core competitiveness. Because of the external view of the R&D activities, it will appears to market failures if relying solely on business investment, so we need government departments to give redress and remedy by financial subsidies. Therefore, the study of government subsidies for R&D investment has important theoretical and practical significance.Firstly, on the basis of studies at home and abroad, we make theoretical analysis of the motives and methods of government subsidies, the policy conditions that government subsidies to be implemented as well as three mechanisms that government subsidies affect R&D investment of; Second, on the basis of John-Asker and Mariagiovanna Baccara models, we make theoretical derivation about the relationship between government subsidies and corporate R&D investment. Furthermore, with2005-2007China’s industrial enterprises micro-data samples, we use Propensity Score Matching method to examine that how government subsidies affects R&D investment exactly, then analyze the crowding-out effect of government subsidies on business R&D investment by constructing a Mixed-sectional data model, the conclusions are as follows:(1)The Government R&D subsidies does not necessarily lead to the rise of corporate R&D input levels, the effect changes with the size of the subsidy rate, when the subsidy rate exceeds the critical value, the government subsidies will encourage firms to do R&D activities, and improve the whole level of corporate R&D investment.(2)Government subsidies does not necessarily promote the enterprise’s own actual R&D investment, there are also a critical value, only when the more than the subsidy rate exceeds the critical value will the government subsidies promote R&D investment, otherwise it will cause crowding-out effect.