Public Support of Private R&D-Effects on Economic Sustainability

A substantial part of contemporary R&D policy in developed countries is focused on the support of R&D in the private sector. Such intervention is theoretically justified by a higher propensity to innovation and consequently to higher competitiveness, which promotes sustainable economic growth. Most of the empirical research done so far focuses mainly on the leverage effect, the effect on innovation activity or on estimating the crowding out effect of public support. Although the outcomes of this research are quite contradictory, only a few studies focus on the effect of public support of private R&D on the private bodies' performance indicators, which are naturally connected with a company's economic sustainability. In this article we use counterfactual design and show that the R&D policy of supporting the private sector leads to higher innovation activity, but it does not lead to higher value added and productivity for supported subjects, at least in the short run. Such a finding suggests a possible flaw in R&D policy implementationit is questionable if higher innovation activity is truly effective if it is not followed by a positive effect on production (value added) and productivity, and if it does not have a positive effect on competitiveness or lead to sustainable economic growth.