R&D subsidies and business R&D: Evidence from high-tech manufacturing firms in Jiangsu

- We find that R&D subsidy significantly stimulates firm-level business R&D.
- On average R&D subsidy significantly raises firm-level business R&D intensity.
- R&D subsidy is more effective for smaller and more financially constrained firms.
- R&D subsidy is more effective for private-owned firms.
- Different methods and robustness tests confirm credibility of our findings.

We investigate how R&D subsidies affect business R&D investments using cross-section data of high-tech manufacturing firms in Jiangsu province of China. Our estimations based on propensity score matching suggest that public subsidies positively influence business R&D investments. Further classifying firms into different groups by size, financial constraints, and ownership, we find that the stimulation effect is more significant and stronger for smaller firms, more financially constrained firms, and private-owned firms. The heterogeneity of policy effects with respect to export status, Relative Comparative Advantage index, region, and industry are also discussed.