Effects of multilevel policy mix of public R&D subsidies: Empirical evidence from Japanese local SMEs

Regional innovation policies have been implemented in several countries. In Japan, controlled decentralization of traditionally centralized innovation policy is ongoing, so that we can observe multilevel policy mix of public R&D (research and development) subsidies by national, prefecture, and city governments. However, empirical studies on multilevel R&D support using panel data and considering municipality level have been scarce. Based on original survey data and financial data of manufacturing small and medium enterprises (SMEs), we estimate their total factor productivity (TFP) and empirically investigate the effects of public R&D subsidies by national, prefecture, and city governments. We employ firm-level fixed-effect panel estimation in order to control for the effects of any unobservable time-invariant factors. We find that multilevel subsidies (especially those involving city subsidies) complementarily and persistently increase recipients' TFP. These results suggest significant advantages of multilevel policy mix, especially those involving city subsidies.