The effects of government-industry R&D programs on private R&D: the case of the Small Business Innovation Research program

I ask whether government-industry commercial R&D grants increase private R& D. Regressing some measure of innovation on the subsidy can establish a cor relation between grants and R&D, brit it cannot determine whether grants in crease firm R&D or whether firms that do more R&D receive more grants. Usin g a dataset of firms involved in the Small Business Innovation Research (SB IR) program, I estimate a multiequation model to test these hypotheses. Fir ms with more employees and that appear to do more research win more SBIR gr ants, but the grants do not affect employment. Moreover, I find evidence th at the grants crowd out firm-financed R&D spending dollar for dollar.