Promoting Innovation: The Differential Impact of R&D Subsidies

We investigate the efect of R&D subsidies on frms’ innovation by ownership, industry, and frm size using German frm-level data. The impact of R&D subsidies is heterogeneous across industries for multinational corporations (MNCs) and domestic frms. This heterogeneity is robust using various estimators. Domestic frms have a larger response in R&D spending in low-tech and medium-term manufacturing, while the efect in high-tech manufacturing is larger for both domestic and foreign MNCs. In knowledge-intensive services and technological services, the response of domestic frms and in some cases foreign MNCs, is greater than that of domestic MNCs. In terms of patents, foreign MNC subsidiaries tend to have a larger count in high-tech manufacturing.