Research and Development subsidies: the effectiveness of a regional policy

The empirical evidence concerning the impact of Research and Development (R&D henceforth) subsidies on both sides of the innovation process (input and output) and the overall performance of the firm is mixed. Moreover, while the role of regions in implementing innovation policies has increased since the last decade, little is known on the effectiveness of a regional policy. This paper analyzes the effectiveness of a local R&D policy implemented in the Italian province of Trento, during the period 2002-07. The econometric analysis is based on counterfactual models. We evaluate the achievements of the local policy maker with respect to the following objectives: (i) prompt additional investment in innovation; (ii) enhance the overall performance of subsidized firms operating in the province of Trento. We find that R&D subsidies positively affect investments in intangible assets and human capital, while they have no effect on firms’ turnover, labor productivity and profitability.