The Effects of Public R&D Subsidies on Private R&D Activities in Mexico

Abstract

This paper analyses the impact of a public research and development (R&D) subsidyto private firms in Mexico. My estimates suggest that the subsidy has a positive im-pact on personnel allocated to innovation activities, but it does not have an effect onother measures of R&D performance, such as research personnel, patents or privateR&D spending. I argue that awarded firms would have performed their planned R&Dprojects in case they were not granted the public funds. Additional public funds seemto be invested in allocating more personnel on already planned projects, but not oncarrying out additional ones. Specifically, I analyze thePrograma de Est ́ımulos a laInnovaci ́on(PEI) subsidy. The program's rules set a grade threshold below which noR&D projects get the grants and above which some projects are granted. This grant-ing process allows to use a fuzzy regression discontinuity approach to identify causalinference.