Government R&D Subsidy, Economic Incentives and Knowledge SpillOvers, mimeo, obtained from www.cs.jhu.edu/∼mfeldman

New public R&D programs attempt to encourage innovation and economic growth by supporting projects with the potential to generate high social rates of return. Using data on proposed projects and post application performance, we estimate the extent to which projects that received funding exhibited behaviors that the literature associates with knowledge spillovers. We find that projects that received subsidies were more likely to have attributes that provide greater pathways for knowledge spillovers such as participation in new research joint ventures and connections to a large number of other firms. Further, we find that government awards provide a signaling effect for subsequent R&D investment by other sources. Our results suggest that government R&D funding may have a positive and previously undocumented effect on private firm behavior and subsequent economic growth