Additionality of public R&D grants in a transition economy: the case of Eastern Germany

This paper examines input and output additionality of public R&D subsidies in Western and Eastern German. We estimate the impact of public R&D grants on firm’s R&D and innovation inputs. Based on the results of the first step we compare the impact of publicly funded private R&D on innovation output with the output effect of R&D funded out of firm’s own pockets. We employ micro-econometric evaluation methods using firm level data derived from the Mannheim Innovation Panel. Our results point toward large degree of additionality of pubic R&D grants with regard to innovation input measured as R&D expenditure and innovation expenditures as well as with regard to innovation outputs measured by patent applications. Input additionality is more pronounced in Eastern Ger-man during the transition period than in Western Germany. However, R&D productivity is still larger for the established West-German innovation system than for Eastern Ger-many. Hence, a regional redistribution of public R&D subsidies might improve the over-all innovation output of the German economy