Intensity of private R and D in regions: Impacts and interdependencies of financial public supports

Underlining the numerous externalities and distortions that lead firms to underinvest in R&D, the economic literature largely supports the implementation of financial public aids to private R&D. The proliferation of these aids at different territorial levels and the recent emergence of contrasting arguments concerning their rationale create an increasing need for the analysis of these policies and their territorial impacts. Based on an empirical study using a panel of 22 French regions, the purpose of this paper is to provide an analysis of the capacity of financial support to R&D to stimulate private investment in R&D within regions. Existing studies on the evaluation of financial public supports to R&D mainly focus on national instruments and on two main subjects: analyzing whether the different public aids tend to really enhance private investment in R&D or on the contrary to substitute themselves to private existing expenditure (cf David et al. (2000) for a review); measuring the impact of some specific instruments (tax credit, subsidies...) on the expenditure and investment of firms in R&D (Hall & Van Reenen (2000) for a review). This paper adds to the literature on three main aspects. Firstly, using data on the 22 Nuts2 French regions, our estimates allow us to better analyze the complementarity/substitution effects between the diverse instruments of public policies implemented at different territorial levels: European, national and regional. Secondly, compared to the macroeconomic data usually used, our regional data is also more detailed concerning the different types of instrument implemented thereby allowing us to finer analyze the complementarity/substitution effects between indirect supports (tax credit) and diverse forms of direct supports (subsidies..). Finally, spatial interactions between public policies supporting private R&D are systematically estimated which is very rarely done in the literature. This, in particular, allows us to measure the importance of territorial competition through subsidies